It’s looking like E*Trade may, in fact, go bankrupt. The stock lost more than half its value in trading today and half of E*Trade’s deposits are in accounts that are above the $100,000 FDIC insurance limit—making a run on the bank more than likely. [New York Times]

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  1. humphrmi says:

    The Citi Investment Research analyst who started all this “E-Trade is going bankrupt” nonsense pegged the chances of bankruptcy at 15%, and it was a worst-case scenario that CIR was laying out. Other analysts said 5% (chance of BKL) before the Citi note and then increased the chances afterward, largely on the basis of the note itself.

    There’s possibly a bit more information in this CNN Money article than the NYT article in the post:

    [money.cnn.com]

    I’m not saying that a bankruptcy is not going to happen, but I’m also just a bit concerned about letting the alarmists run the market right now.

  2. uricmu says:

    I feel that there’s an overreaction in terms of ETRADE. The stock has dropped in a few month from 25$ to 3$ per share, even though lending isn’t even its primary business.

  3. xanadu1979 says:

    Darn, I just opened an E*Trade checking account about a month ago and spent a lot of time getting my direct deposit and all my automatic payments setup. I don’t want to close it because they charge something like $125 if you close within 3 months of opening the account.

    I knew I should have went with a brick and mortar place.

  4. BigHeadStu says:

    Just closed my account with them…I would REALLY rather not find out how much fun it is recovering my money thru FDIC might be…

    Too bad though…I liked it for what it was–a place to sock away money and let it make interest. Never even looked at any of their other services. Who knows, if they can right the ship, I might go back…

  5. another_consumer says:

    In light of this news, all I can say is:

    GOOD.

    I *hate* E*Trade. I was an early E*Trade customer, and at some point (I think it was about 3 years ago), they drastically changed their fee structure, so someone like me with a small account (around $10k) started getting hammered with fees for not actively trading. It was the final insult after riding out the 2000 dot-bomb, and all I was trying to do was think long term.

    Well, that wasn’t making them any money, so they started charging those fees. I got out.

    Good riddance.

  6. humphrmi says:

    Probably also good to point out now that the $100K insurance is FDIC insurance on savings accounts. The SIPC insures brokerage accounts for up to $500K after any recovery. This is important because that means that a multi-million dollar account could recover all of it’s assets between bankruptcy recovery and SIPC insurance:

    To illustrate a SIPC liquidation:
    Assume a firm fails, resulting in $5 billion of client claims on assets.

    Assume a recovery rate of assets in liquidation of 90 percent or $4.5 billion.

    Assume a client with an account of $5 million.

    In a customer proceeding, the client would receive $4.5 million from recovered assets and
    $500,000 from SIPC. The loss on a $5 million client account would be zero.

    [64.233.167.104]
    (converted to HTML from PDF by Google)

    Again, any run on E*Trade will be the direct result of FUD caused by reporting that they might go bankrupt, not by the risk of bankruptcy losses themselves.

  7. iamme99 says:

    @HUMPHRMI…but I’m also just a bit concerned about letting the alarmists run the market right now.

    Yeah. To bad so many were happy playing the Ponsi pyramid economic game before and no one wanted to pay attention to all the alarm signs that were being raised. Now the piper is going to be paid over the next 2-4 years.

    You E-Trade holders should read this:
    [globaleconomicanalysis.blogspot.com]

    There’s a few posts in the comments indicating that SPIC insurance might not help the average person.

  8. humphrmi says:

    @iamme99: Looks like more of the same FUD to me.

  9. Javert says:

    @xanadu1979: You don’t necessarily have to go with a brick bank since your interest will be a joke but maybe a more established bank. HSBC, Wachovia, Capital One all have decent savings earning between 4.5 and 5%. Better than the .2% I think I was earning at the BOA in town.

  10. b612markt says:

    Does Harris Bank still own etrade? poor poor harris…

  11. MalcoveMagnesia says:

    if they go bankrupt, what happens to the stocks ETrade is holding for their customers?

  12. derobert says:

    @BigHeadStu: You should look up NetBank. When they were put into FDIC receivership, the total inconvenience was apparently losing online account access for a few hours as they moved everyone to a non-failed bank.

    You can read the FDIC’s press release.

    As long as you have less than the FDIC limit, there doesn’t seem to be anything to worry about.

  13. BigHeadStu says:

    @derobert: I did…there are several angry posts littered throughout the internets about how the former netbank customers had their accounts sold to ING Direct, who apparently “lost” them in the shuffle.

    I wasn’t really worried about losing my money in an E*Trade implosion, I was more worried about the potential hassle it was going to be getting it back…