E*Trade (ETFC): Better Disclosure, Needs More Cash

Demolished E*Trade finally gets a gold star for disclosure. After months of spin and selective data releases, the company finally opened the kimono on its troubled $12 billion home-equity portfolio and turnaround plan.

The bad news:

  • The company still needs more cash. It plans to raise this through asset sales and “capital market transactions” –presumably stock sales, presumably dilutive.
  • The turnaround plan will take at least through the end of 2008.
  • The company cannot sell its $12 billion home-equity albatross, because there is simply no market for it. It has raised the loss expectations for the portfolio to deal with expected further drops in the housing market.
  • E*Trade’s loss assumptions call for a 10% decline in house prices in 2008 and an additional 5% in 2009. This is reasonable, but it’s also clearly not a worst-case scenario. If this housing cycle follows the previous one, house prices will likely decline through 2011.

The Good News

  • The brokerage business appears to be stable despite the loss of some valuable customers when the company blew up back in November.
  • Management finally seems to be shooting straight and providing a detailed picture of the company’s situation– the first critical step toward restoring confidence and credibility.

Partial Transcript

The Chronicles of E*Trade
ETrade Bounces Off The Bottom
Is E*Trade Revisiting its “No Bankruptcy” Vow?
eTrade Still Playing Fast and Loose With Facts?

ex-E*Trade CEO Mitch Caplan Voted 2007 Goat of the Year
E*Trade Tries to Instill Confidence, Fails
Singing the E*Trade Blues: Stock Approaching $3
E*Trade’s Long, Quiet March Toward Zero

How to Destroy a Company in 5 Short Months: An E*Trade Financial Seminar
Cost of E*Trade’s Gambling Debts: $9+ Billion and Counting
E*Trade’s Citadel Deal Cuts Existing Shareholders in Half
E*Trade Saved By Hedge fund Citadel

E*Trade on the Block
E*Trade’s Desperate Ads Crush Stock Again
E*Trade CEO Denies Bankruptcy, Risks Jail Time

E*Trade to Customers: Please Don’t Take Money and Run!

How E*Trade Can Save Itself
Demolished E*Trade Plays the Wimpy “Irresponsible” Card

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