ETFC: stock over sold.

Notablecalls is out with summary of the analyst comment on Etrade. Amid the concerns that the company will have a significant writedown on the sub-prime loans, the company share plunged yesterday to less than $4, significantly down from mid-20’s that the share was once trading in the middle of this year. The share price is at this point reflecting the possibility of bankruptcy and the Etrade customers fleeing to other brokerage names such as Schwab and TD Ameritrade. I think although the possibility of filing bankruptcy cannot be ruled out, I deem this as a highly improbable scenario. I see buyers of Etrade asset emerging at this share price level. It will take some time for Etrade share to recover. However, the stock is trading with worst possible scenario and I see some opportunity here with the stock.

ETrade (NASDAQ:ETFC): Color on news

We have couple of firms commenting on ETrade (NASDAQ:ETFC) after the co said on Friday it expects further write-downs on its $3 billion asset-backed securities portfolio and the U.S. Securities and Commission is investigating.

- Banc of America is lowering their tgt to $10.50 from $12 while keeping Neutral rating on the stock.

- Citigroup is lowering their rating on ETFC to Sell from Hold and cutting tgt to $7.50 from $13 saying the continued negative news flow about charges resulting from its mortgage & CDO exposure, an SEC inquiry, and continued deterioration in its financial condition, all increase the likelihood of significant client attrition.

Firm estimates that trying to liquidate E*Trade's loan & ABS portfolio would result in over $5b of losses (more than wiping out tangible equity). Based on accounting convention, E*Trade is not required to mark-to-market certain loans and securities. However, in the event that it has to sell these assets as a result of losing its funding sources (e.g. deposits & repo lines), losses could be realized. Citi's haircuts to arrive at the $5b loss estimate include 10% on 1st lien loans, 20% on HELOCs, and 25% on its ABS portfolio.

They lowering 07/08/09 earnings est to $0.31, $0.90, $0.90. the tgt of $7.50, includes a 15% probability of bankruptcy.

Notablecalls: Citigroup's call is titled "Bankruptcy Risk Cannot Be Ruled Out". That's why we have the stock down 30% in pre-market and not 10% like it should be following Friday's news. And it would still be a bounce candidate!

This stuff sounds like '00-'02 when Guy Moszkowski was covering ETFC for Citi (then Salomon). Think he downgraded the stock to Sell around $4. Man, this is clueless stuff. Prashant, you should have seen this coming and should now be looking for reasons to UPGRADE this stock, not downgrade. Phew!

It's a buy around $6. Even if the mortgage positions end up worthless, ETFC is worth a lot more than what it is selling for right now.

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