with good reason
E-Trade shares fall after B of A analyst cries sell
Marketwatch - December 03, 2007 9:31 AM ET
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NEW YORK (MarketWatch) - Shares of E-Trade Financial fell more than 10% in opening trading Monday after analysts at Bank of America suggested clients sell the shares, saying the brokerage business is not strong enough to offset problems at the firm's bank.
The analysts added that another $1 billion in loan loss reserves are likely at the bank and that would wipe out any earnings for all of 2008.
Bank of America cut its price target on the shares to $2, and the stock fell 12% to $4.02 in opening trade.
"Best case, we expect another $1 billion addition to reserves, enough to wipe out another year of earnings per share, in 2008," Michael Hecht wrote in his report.
"Worst case is a continued fire sale of assets at E-Trade resulting in an outright sale of the home equity portfolio (which we believe could be at about 70 cents on the dollar, an incremental $3.7 billion hit)," Hecht concluded.
Last month, Citadel, a Chicago-based private investment fund, agreed to take about a 20% stake in E-Trade and purchased an asset-backed portfolio, on E-Trade's (ETFC) books for about $3 billion, at the fire sale price of $800 million.
At that time, the firm also shook up management, with CEO Mitch Caplan stepping down from that position while keeping his role as chairman of the board. President Jarrett Lilien became acting CEO.
That is not sitting to well with the B of A analysts.
"We found it odd that his (Caplan's) 'right-hand man' and current president, Jarrett Lilien, assumes the CEO role, even on an interim basis while Caplan remains on the board of directors, raising the question of how much has really changed in the senior management suite at E-Trade, and limiting we think the board's ability to attract new senior talent." they wrote.
Elsewhere in the financial sector, investors are eagerly awaiting comments to be made this morning by Treasury Secretary Hank Paulson. He is speaking at a housing forum in Washington sponsored by the Office of Thrift Supervision.
He is expected to reveal more details of a plan that Treasury has been negotiating with the mortgage industry that would modify some subprime home loans and freeze interest rates on many adjustable-rate mortgages to prevent foreclosures.
"In addition to the OTS forum on Monday, there is a House Financial Services Committee hearing on Thursday on loan modification, so this is a topic that will get lots of attention this week, and if Paulson leaves some details out of his Monday speech there will be an opportunity to reveal more later in the week," Keefe Bruyette & Woods analyst Brian Gardner said in a research note on Monday. |
