E*Trade (ETFC) lost almost two thirds of its equity market value yesterday. It has about $1.5 billion left. After seeing the stock get obliterated, more E*Trade customers will likely decide that they would rather remove their money now, while they can, than risk having to wait for the company’s federal and private insurance bureaucracy to kick in. This, in turn, will likely put more pressure on the stock. And so on.
Here’s how E*Trade can save itself:
- Take a page out of Countrywide’s book and get a massive cash infusion–today. Say what you will about Countrywide CEO Mozilo, his decision to run hat in hand to Bank of America et al in August saved the company.
- Sell the company…
- Blame Citi analyst Bhatia for its troubles.
- Announce again that even a billion-dollar write-down won’t kill it.
- Reiterate that it doesn’t know how extensive its mortgage losses will be.
- Hope that market conditions improve.
The company could also have its board and CEO Mitch Caplan issue a clear, forthright statement describing the company’s financial position and outlining the measures management is taking to restore it to health. This is certainly a better PR strategy than trashing a sceptical analyst.
The trouble with this strategy is that it is highly risky: Specifically, if E*Trade can’t find its way out of this bind, such a statement could eventually be used as evidence in civil lawsuits or even in a criminal trial that could send the Board/CEO to jail (Not because the statement would be inaccurate. Just because, in hindsight, accusers can usually suggest that the Board/CEO knew more than it said it did.)