E*Trade's 'First In, First Out' Position: Yes, 111M Shorts Can Be Wrong

Since Citadel’s cash infusion in late November 2007, E*Trade’s (ETFC) share price has been range-bound:  dropping as low as $2.08, rising as high as $5.48, and sitting at around $4 for the past two months.  Illogically, this current $4 range was the exact low price range in November  2007 when no one was sure whether E*Trade would survive bankruptcy.  In November 2007 E*Trades bankruptcy price per share ranged from $4 to $6.  In 2008 the highest price has been just above $5 for a handful of days in February.

Additionally,  short interest positions continued to increase last month.  Perhaps this is just a product of hedge funds playing games with the share price in a tight range or perhaps not.  How long will it take to chase the 111 million shorts out of this stock?   Especially when average daily volume is only 15 million shares.

The main rationale for shorting E*Trade is the mortgage portfolio.  The problem with this rationale is that E*Trade’s mortgage problems were fully disclosed on the table and the impact was inflicted in full back in November 2007—and E*Trade survived.  After Citadel’s investment, a turnaround plan was established and many milestone markers of successful execution have been reported, especially in the last two months.  

The April quarterly report soundly established that bankruptcy was no longer a problem, April metrics were better than the industry averages, and as of May the loan portfolio was performing according to management expectations.  Subsequent marketing strategies, innovative brokerage tools (BlackBerry), improved brokerage metrics, and stabilizing balance sheet transactions make the current “bankruptcy pricing $4 range” completely unfounded. 

Other lenders like Lehman (LEH), Merrill Lynch (MER), UBS AG (UBS) and Citigroup (C) have just started to reveal their problems, are questioned regarding whether they are revealing the true extent of their problems, and are still figuring out what they are going to do to survive.  Along with LEH and MER, Cramer included JPMorgan Chase (JPM), Bank of America (BAC), Countrywide Financial (CFC), Wachovia Corp (WB), and Washington Mutual (WM) Monday morning in “Cramer on BloggingStocks: Questions swirl around Lehman’s capital raise.”   Cramer points out the lack of transparency about what’s in their portfolios and the “soft denials,” about how bad it is.  Notably, E*Trade was not listed nor included in Cramer’s discussion. 

E*Trade’s true position among them is more of a “First One In,  First One Out” and moving on down the road.  However, the market still perceives it to be related to the “bad news” banks; but E*Trade has been in a full disclosure position since the 4^th quarter of 2007.  The question is not if E*Trade will make a profit, it is a matter of “when,” and according to the words and actions of CEO Donald Layton it will happen soon.

This begs the question, exactly when does a share price return to even a third ($6 to $8) of what was considered normal ($18 to $24 pre-July 2007)?  When does a share price fully return to normal (a gain of 400 to 600 percent)?  Book value/cash on hand is around $6.50/share.

Let’s review in more detail what E*Trade has done these last seven months:

1. Stable Customer Base and Customer Cash Levels 
2. Aggressive and Superior Technology Trading Platform Leadership
3. Secure Capital Levels and Excess Cash Reserves
4. Improved Debt to Equity Position
5. Positive Effects of Citadel’s Investment
6. Mortgage Portfolio Activity, Loss Provisions, and Portfolio Composition
7. Insider Stock Purchasing and Management Compensation

Stable Customer Base and Customer Cash Levels 

E*Trade’s customer base is secure and is now growing again.  E*Trade’s customer cash stabilized in December - after Citadel’s investment - at approximately $33B (see Q4 conference call transcript).  After the first quarter, E*Trade’s customer cash equaled $35B – this level is far ahead of the company’s own projections for 2008 (see Q1 conference call transcript).  To put this in context, before Prashant Bhatia’s November 12th article and the ensuing run on E*Trade’s bank, customer cash equaled $39B.  E*Trade is well on its way to getting back to this level of cash deposits.  E*Trade added 60,000 new customers in the first quarter of 2008 (see Q1 conference call transcript), which is the highest level of new customers since the 4^th quarter of 2005.  These business trends show that E*Trade’s  brokerage business remains steady and strong.  As Jim Cramer recently stated – the brokerage is “fantastic.” 

In summary, E*Trade’s customers base, in spite of a major bank run, is stable and growing.  E*Trade’s competitors will no longer siphon customers from E*Trade that are worried about E*Trade’s mortgage issues. In fact, E*Trade is actually gaining customers at the expense of their competitors .  This cannot be stressed enough. Everyone saw what happened with BSC – it was at the mercy of hedge funds that could withdraw $17B in cash a day, and did. That destroyed BSC. In contrast, E*Trade’s customers are comprised of millions of individuals, those who remained after November 2007 have remained strong with, and loyal to, the upstart brokerage; and many who left have obviously been returning .  Customer cash levels show that E*Trade’s customers continue to believe in and trust E*Trade.  Adding to customer confidence are the high levels of insurance E*Trade maintains for accounts, including $100K of coverage for the FDIC and $500K of coverage from SIPC. 

Aggressive and Superior Technology Trading Platform Leadership

Last week’s announcement of “E*Trade Mobile Pro” for BlackBerry is indicative of  the market technology aggressiveness and leadership position E*Trade is establishing among brokerages.  E*Trade is the first brokerage to offer this mobile platform and like recent PowerTrading upgrades and service enhancements, it is absolutely FREE.   Technological aggressiveness and “early entry” into new brokerage services E*Trade will secure a dominant market share position in both the USA and in “world” brokerage markets.  According to E*Trade, an “iPhone trading, ” “Palm trading,,” and Windows Mobile trading” platform is in line right behind the BlackBerry mobile platform. 

E*Trade’s superior and stable trading platform is a strong factor for customer retention and growth.  For example, several times over the last few months and as recently as last week, TD Ameritrade (AMTD) customers have experienced slow order execution, quote tracker problems, and slow or dropped streaming during critical trading times; resulting in extensive customer complaints. Problems at TD Ameritrade could very well be contributing to E*Trade’s success as customers that left E*Trade now return because of dissatisfaction with Ameritrade’s stability and platform.

E*Trade’s  continual “free upgrades and enhancements” to their powerful system tools,  their “problem-free, high-powered” platform, with the opportunity to trade in 6 global markets, and sophisticated option trading tools provide for maximum customer satisfaction and new customer attraction.  The E*Trade services are more global and comprehensive than TD Ameritrade (AMTD) or Schwab (SCHW).

Secure Capital Levels and Excess Cash Reserves

E*Trade’s capital levels are stronger than most major banks. In addition to the “loss reserves” that E*Trade intends to set aside for its HELOC portfolio, E*Trade also intends to set its cash reserve level in excess of well-capitalized standards at $1B.  At the end of the first quarter, E*Trade had about $700M of excess cash and a risk-based capital ratio of 12.4%. To put it in context, J.P. Mogan has a 12.4% capital ratio and WFC has a risk-based capital ratio in the range of 11%.  E*Trade’s goal is to have a risk-based capital ratio at 13% by year-end 2008. Based on E*Trade having exited the mortgage business, wholesale and origination, with associated loan run offs, the addition of $300M more excess cash to the balance sheet, and the trend of increasing customer cash, E*Trade will almost certainly smash through its goal of a 13% risk-based capital ratio.

Where is E*Trade getting all this cash?  Let’s review. 

Non-core Asset Sales.  E*Trade estimates that it will have at least $500M of cash coming from non-core asset sales (E*Trade already received approximately $150M from the sale of its Indian assets. That’s right, no share dilution for $500M needed. So, if $300M from these asset sales is used to reach E*Trade’s excess cash goal of $1B, which is all that is required, that means E*Trade will then have $200M of free cash to do whatever it wants with.

Expense Reductions.  On its 4^th quarter conference call, E*Trade announced a $360M expense reduction and an additional $50M compensation cost reduction for a total of $410M of cost cutting.  Subtracting $80M they stated would be dedicated to increased advertising, E*Trade will have net another $330M of excess cash from cost cutting initiatives. 

Summary.  Let’s do a rough, back of the envelope calculation here. Due to all of the above-mentioned measures, E*Trade will likely have approximately $530M of excess cash to beneficially apply where appropriate by the end of this year. Strikingly important is that this will be accomplished with no additional share dilution and is in addition to the approximately $500M of excess cash E*Trade has at the brokerage (from E*Trade’s 10k) and the $1B of excess cash E*Trade will have at the bank. That’s a lot of cash on-hand.  

Improved Debt to Equity Position

E*Trade’s improvement in its debt to equity position is ahead of the 2008 recovery plan. The parent company of E*Trade has a lot of debt and Mr. Layton has already embarked on a plan to clean this up. He has planned $700M of debt for equity swaps. Now this does result in additional shares, but overall is very beneficial to current shareholders as it rids E*Trade of the onerous debt on its balance sheet.

Mr. Layton has already accomplished approximately $184M of these debt for equity swaps, and still has a planned $450M at $18 per share for November 2008.  Layton has only $66M of debt for equity swaps left to do/account for. As a lifelong banker with JPM, Mr. Layton’s dedication to cleaning up the balance sheet will greatly benefit E*Trade’s shareholders. 

Positive Effects of Citadel’s Investment

First of all, the Citadel investment stabilized E*Trade at a critical juncture in time.  Citadel did involve share dilution and E*Trade shouldering debt at a fairly high interest rate.  But compared with the dilution that major financial institutions have had to deal with recently, E*Trade appears to have gotten an o.k.  deal (for example, BSC, WM, NCC, and TMA).  Indeed, on the November 29, 2007 conference call, E*Trade’s own accountants stated that the anticipated dilution would amount to something approximating 50 cents per share. In any event, the Citadel deal was necessary and accomplished the purpose of stabilizing E*Trade’s business.

Also of interest is the fact that Citadel has continued to purchase E*Trade’s senior debt. From a recent SEC shelf filing, after the debt for equity swaps are considered, Citadel now holds about 75-80% of E*Trade’s outstanding senior debt. Even more interesting from the shelf filing, all of this debt and shares held by Citadel and Blackrock it appears can be sold to any party, even an E*Trade competitor. Moreover, the shelf filing reveals that all of these senior notes are not secured by the assets of the subsidiaries until 2011. This is important because the parent company of E*Trade does not have any real substantial assets to speak of; all of the business is conducted through the subsidiaries. Thus, if Citadel were really concerned that E*Trade could be in trouble, it would not make much sense to continue to accumulate E*Trade’s debt when said debt is not secured by any real assets.

And another point according to the Wall Street Journal, Mr. Nicoll formerly of Instinet, LLC, was Citadel’s top choice for the CEO position, but declined to take the position when he found out E*Trade couldn’t be taken private. Thus, any nefarious conspiracy theories that Citadel is going to take E*Trade private for a dirt-cheap price doesn’t really make sense. In addition any such deal would be subject to incredible scrutiny not just by shareholders, but by the OTS since E*Trade is a federally regulated bank. Finally, the fact that a very powerful hedge fund has a vested interest in E*Trade’s success should be considered a good thing..

Mortgage Portfolio Activity, Loss Provisions, and Composition

Finally, let’s talk mortgages. E*Trade has four categories of mortgages:

1. Consumer loans (boats, RVs, etc.), 
2. Mortgage-backed securities,
3. First-lien prime loans, and
4. HELOCs. 

Consumer loan delinquencies actually decreased from the 4^th quarter 2007 to the 1^st quarter 2008.  Similarly, the “mortgage-backed securities” portfolio has shown stable performance.  All but $1.1B of that portfolio is backed by FNM and FRE. And the $1.1B that is not backed by FNM and FRE is AAA or AA rated and has been appropriately written down assuming that the U.S. has entered a mild recession.  In other words, this portfolio is a non-issue (see Q1 conference call transcript).

The first-lien portfolio is performing worse than expected but this really has no effect on E*Trade’s capital position.  E*Trade’s average position in these properties is about 70% LTV.  Moreover, E*Trade has insurance on any property over 80% LTV and approximately $4B of this portfolio is covered by a credit default swap.  In other words, while the first-lien portfolio may be a drag on earnings, it is not going to hurt E*Trade’s capital position due to E*Trade’s position in these properties.

Finally let’s turn to the HELOC portfolio. To date, E*Trade has already charged off about $300M in losses on this portfolio, and has approximately $500M of reserves set aside for future charge offs--which E*Trade estimates will cover the next four quarters of chargeoffs.  Even assuming a U.S. recession, E*Trade has affirmed its estimates of cumulative losses relating to this portfolio to be around $1B to $1.5B over a three year period—this total loss exposure was arrived at with third-party consultants.  E*Trade affirmed this range on the 1^st quarter conference call and again at the shareholders’ meeting in May.

At the low end of $1B, E*Trade would have to provision for $200M more of losses. At the high end of $1.5B, E*Trade would have to provision for $700M more of losses. E*Trade stopped acquiring mortgage loans in early 2007, especially the high LTV% home equity loans. Thus, the mortgages that should never have been written and were destined to go bad, most likely have already gone bad. This would explain why new delinquencies actually DECREASED in the 1^st quarter of 2008, a statistic so surprising that one analyst on the call inquired on this very fact since this is the exact opposite of what analysts are seeing in other financials.  It is important to note that all of E*Trade’s loan reserves and performance projections are on the conservative side and assume a U.S. recession. 

Evaluating the current composition of E*Trade’s home equity portfolio shows additional positives.  Of the approximate $11.5B loan portfolio, E*Trade has the second lien position for only $1.5B.  The greatest danger is if the lender’s loan is in second position.  This means that E*Trade has about $10B worth of pure home equity loans in its portfolio.  Assuming a $1.5B total loss figure means that E*Trade is prepared to write off 15% of these pure home equity loans. Succinctly put, even assuming that the mortgage/housing market continues to deteriorate, E*Trade has been super-conservative in preparing for such an event and a recession is already priced in to the assumptions E*Trade has envisioned. Therefore, although one should always be aware of the current state of the market, E*Trade can handle the current housing market, and should have no problems handling a further deterioration as well.

In conclusion, the mortgage performance reports from management in April and May establish that E*Trade’s home equity loans are showing stable and even improving results, while other lenders’--like Lehman (LEH) this week--will continue to struggle with home equity loans for some time to come.  

Insider Stock Purchasing and Management Compensation

Insider stock purchasing in 2008 is very encouraging. Mr. Layton spent $1M of his own cash to purchase E*Trade shares at $4.07 and the entire Board of Directors recently purchased a substantial number of shares on January 29.  Moreover, Mr. Layton has options for 235K shares in November of this year that are worthless unless E*Trade’s share price is above $5.26. That, plus the additions of Mr. Druskin and Mr. Kanner to the Board brings substantial experience, credibility, and know-how to the Board. 

Interestingly, Mr. Kanner  purchased 50K shares or April 22, and just over a week ago purchased an additional 25K on May 30 at $4.03 making a total of $387K of personal funds invested in E*Trade stock. 

When Mr. Layton accepted the CEO position, his entire CEO compensation package was comprised solely of stock options. That’s correct, he doesn’t receive any cash for acting as CEO of E*Trade. The only cash payment he receives is from his duties as Chairman of the Board and that was fixed in late 2007.  Clearly, Mr. Layton sees E*Trade stock as a good investment and has personal motivation for management decisions that will continue to increase shareholder value and be non-dilutive. 

His statements have stressed again and again that management actions will be shareholder friendly, and that E*Trade will only access capital markets on an opportunistic basis and in a shareholder friendly manner (see Q1 conference call transcript).  But with all of the above discussion, it is obvious that E*Trade has no pressing need to raise more capital.

Disclosure:  Author has a long position in ETFC

Author's note: I have been criticized for writing research on E*Trade while holding a long position.  I respectfully submit that if  I have spent the time to extensively research a stock, and then spent extended additional time to write up the research and share it with other investors, then I would be crazy not to hold a long position in the stock. 

Comments

[orca]

Darling,

You don't need to write yet another hysterical piece on your love-baby, no no, what you really need is a vacation, preferably somewhere with no internet access. Relax, have a Bud, get bronzed, let the hair hang loose, and enjoy life for a week or two. Clear up the mind and pamper the body. ETFC is going nowhere until some macro issues are dealt with and huge imbalances are worked out of the system. Will be over in a year or 10, so no use auto-mutilating your brain with each and every ETFC tick. I very much doubt ETFC will survive in the current form and even if they do that it will be profitable from $4 upwards, but hey what the heck do we care with the US financial and monetary system imploding all around us. From a statistical point of view: 90% of stocks that fall through $5 never regain that level. Basically the same thing applies to $2, so worry about that, but only after your (and our) vacation.
Hasta la vista, bon bini, surf's up and all that,
Your tourguide
Orca

[krisspcritter]

Great job Cindy, once again you have provided a detailed and razor edge recap of what will soon "play out" to be the greatest financial play on the Street this year and in to 2009. Etrade was the first to deal, and as a result, will be the first to heal.

Many of the "bad news banks" that were instrumental in the attempted slaughter of Etrade have only just begun to trot out their broken and busted balance sheets. Etradewill thrive and survive in short order. The big boys will feasting on "net zero" lack of earnings for many, many quarters to come.

I have been buying this stock and stuffing my pockets with both hands and a shovel.

Krisspcritter.

[gibbyd808]

This piece will now hang on my wall as inspiration. Don't tell too many people so the true believers can still get while the getting is good. Thanks, Gib.

[Zeninvestor]

Yep, quite an accurate recap. Nice job!

As to the point that E*Trade will not exist in its current form, that is irrelevant to me as an investor. I think it is more than possible that they will, that it is indeed 'probable'. What is important to me is that the stock is clearly undervalued at the current share price, and not by a little. So if it is sold to a competitor, taken private, or sold to a foreign bank means little to me, but it is clear that any of these options will yield a strong gain for any investor over the $4 range we sit in currently. If they remain independent, as they are, then the stock will rise to fair value over the next six to twelve months.

In two more quarters the state of the mortgage portfolio at E*Trade will be very clear, but as I view it now they are adequately reserved, regulated by the FDIC (unlike investment banks), and the brokerage business continues to grow and generate cash. I am not the slightest bit worried.

In addition, it is my daily trading platform, and in that regard they are clearly head and shoulders over the competition. I can't wait to load their new mobile platform on my BlackBerry!

Thanks Cindy for another round up of the facts, and don't worry folks, investors in E*Trade all know the checkered history and have factored in the 'risks'. Also, to be sure the 'shorts' have made out well in the last year on their strategy, and trading this stock in the last six months has made me money already. That said I am long and quite comfortable now, for many of the reasons stated in this article.

[rossetti2000]

The wait shall be worthwhile.

[BenitoCali]

Great article Cindy. I switched to AMTD during the fall of Etrade and switched back. AMTD doesn't even calculate a basis on individual lots that I purchased, instead averaging them all at one price without dates and purchase prices for each lot. Furthemore, you can't edit individual lots within your portfolio, so ultimately you're left wondering what you paid for what when. How stupid is that! Combine fantastic tax records built into the system with PowerETrade streaming and trading features and this software platform utterly wipes AMTD's slate clean. I was so sad to leave ETrade and so happy to come back. I am holding 35K shares in around $4.00. I was one of their original investors back in 1997 when they were EGRP and have worked with the company a few times in the past as a member of a focus group they conducted on their platform. I've seen Schwab and AMTD and they don't even hold a candle. ETrade is the best!

[GolferBillyM]

Enter your comment hereTerrific summary of the past seven months' evolution, current status and future prospects.

To those that closely follow ETFC, it is quite obvious that the stock price is being artifically held low by the huge short holdings who have dug a very deep hole and are now making an effort to climb out with minimal damage. Once the "brotherhood of shortness" starts to break ranks, the stock will finally find its true equilibrium and bounce back to the pre-BK risk levels.

Can't wait to see that happen.

Again, great write-up !

[mavi027]

To supplement: It appears the housing market *may* be stabilizing. See new home sales, mortgage apps and comments from Toll CEO in the past week.

[VERONICA]

ANY OF US, who hold positions with any good company, can experience big gravity purely as consequence of poor performers in their associated market(s)... or by market declines as a whole. There are simply some ill-run, risk damaged companies out there that drag everything down and the economy IS running tough.

AND THEN there are the ankle biters like "Orca," (author of the 1st comment) who would play devil's advocate to a gold mine. Some of these types, when empowered by print or televised media, can gain enough weight to actually depress an otherwise sound investment. Notoriety, while entertaining, can have a bad effect on a good thing.

SO go with the FACTS... on any company. They are bankable. And unlike baseless opinion and "I want my blog published," market drivel, they will carry you to profit, even if you have to slog through the gutters to cross the street.

THANKS for the facts. You present them well.

Veronica

[orca]

Veronica, was that 10% down in 2 days a bankable fact? My point is that there appears to be an inverse relationship with regard to Cindy's incessant plugging and the share price, hence the "take a hike" advice. Also, she (and others) are marketing current conditions as t.h.e. low, well let me tell you we ain't seen nothing yet. Just suppose WM or C goes belly-up, or GE catches a cold to $23, or GM/F are collected to the Big Honcho in the sky, or the Naz craters, or the USD goes Zimbabwean, or or or, than we have Cindy plugging her love-baby at $1,60 and the herd still likin' it.
E*Trade may be great (no idea, but generallly good comments) but the share-price is composed of many factors, some of them micro (the company itself) and some of them macro. And by the way, what I said about 90% of stock falling through $5 never regaining that level is a valid observation, we can argue chicken/egg here as to why, but we won't.
Finally, I am trading this cracked fountain of hope, not investing in it, and no, I am not short in it and neither do I have puts or short calls.
And a final finally, not all 111m shorts are at $4 and there's also no way of knowing if they have hedged their position, so that number in itself is not very instructive.

[VERONICA]

Dear Orca,

Thanks and I DO see your point. I hope you see mine as well. Cindy may be a raving fangirl (though I don't believe she is), of ETFC and the market MAY tank tomorrow... BUT that doesn't change the positive and verifiable FACTS of ETFC's (or any other good companies') potential and associative trajectory for growing value and worth... which in turn equates to shareowner VALUE.

I say the chicken came first.
Veronica

[orca]

Dear Veronica,

If you have big brown eyes and a happy disposition I will concur with your chicken call. As to ETFC, my view is that it will out-beta the index (any index) by 300-500%, just because it is listed, not because of intrinsic value, which I believe to be a non-starter in this environment. And this environment will not go away anytime soon.
In investing as in romance time will tell, in the meantime keep smiling!

[Slickflick]

Orca isn't a Bear. He's just another fast buck Operator,Veronica.
He IS a helluva good writer,though. ETFC will come out of this
malaise but it will take time. I see it as the "Chrysler" recovery stock of the 21st Century(but without recovering via 'gubment support of the unions.) Maybe Orca(Killer Whale) needs a "love-baby" of his own?

[Ben Williams]

As the price gets lower, I keep adding to my position. Come Jan 09, it will be time to ring the register on this baby. You can't keep a good man or a good stock down forever. They have not only survived but are showings signs of possibly thriving. Always downside risk to any stock, but at $4/share, not much downside and a whole lot of upside. The glass is half full and and I live for the day when the shorts realize their glass is almost empty.

[prescient11]

Great article Cindy, thanks for putting the facts on the table. A great service to all retail investors.

[Ben Williams]

Next quarterly report due out in July 08 should show more signs of progress and can serve as further reinforcement of undervaluation of stock. Probably will not see any significant uptick until then as the baby is being thrown out with the bathwater as the financial as a whole are being beat down. This gives everyone time to accumulate at these low prices now to cash in during the next 12 months as the economy recovers and the financials come back. They are the most beaten up sector and therefore have the best chance to bounce back big, but it will take time.

[EtradePumperBuster]

LOL seems the more Cindy posts other Yahoo Message Board poster's messages the more this keeps dropping. Keep up the clip and paste and edit from the other pumpers on Yahoo.

[EtradePumperBuster]

Nice work orca! You can spot this phony blogger for Seeking Alpha. Read the Etrade message board on Yahoo lately? It is obvious Cindy has a position to gain from Etrade going up (she disclosed she owns it), but she fails to put two and two together. Her positive pumping articles about Etrade seems to do nothing to raise the price of the stock.

Somewhere out there a person would have a clue or common sense not to post at another message board like Yahoo trolling for new material to write about. I guess there must be glass ceilings in the blog world as well. That's why we don't see WSJ writers posting there as well.

Its funny she gets most of her material to post on Seeking Alpha from two posters from the Yahoo message board.

First Prescident11 a self appointed Etrade pumper president of the message board who once said "I will not post here for a month". Guess what happened before that month? Yup you guessed it he starts posting again.

Next she gets material from Numbersssssss. The same guy who was posting about how undervalued Etrade was back a few months before Bhatia yelled "BK". If the stock was at 8 the day before he yelled BK how much was Etrade at least a month before it was 8? You guessed it, Numberssssss has has lost that much in his long investment which explains why he is so gun ho about the stock to go back up to minimize his losses.

In case anyone doesn't know, Cindy Reed posts on Yahoo (very frequently) on the Yahoo Etrade message board as savyinvestor11.

search.messages.yahoo....

[EtradePumperBuster]

This is a rough draft email for the Editor in Chief of Seeking Alpha, Mick Weinstein.

Hi, I need to bring to your attention about one of your bloggers Cindy Reed. Cindy writes positive minded articles about the company Etrade. The problem I see is that the number of her articles about Etrade seems to out weigh the number of other articles about Etrade posted by other Seeking Alpha bloggers. We know her position in Etrade since she has disclosed her owning the company stock. However, isn't there any other standards at Seeking Alpha not to post on any other forum or get material from other forums?

Has Seeking Alpha become a "clip and paste" type of website, or do you still require your bloggers to write and get their own material? Does this impact the integrity of your bloggers on Seeking Alpha? To me it does.

When I first read articles in Seeking Alpha I had a neutral feeling about it. The more and more articles I saw, the more I started relying on Seeking Alpha as another source of information to read. That was until I saw your so called blogger Cindy Reed's articles and her constant repetitive non stop pumping articles on Etrade. To make it worse she clips and pastes articles from known pumpers on the Yahoo Message Board.

Is there any standards for material on Seeking Alpha or to have your writers stay out of the Yahoo Message Boards? Cindy Reed posts on the Yahoo Message Board as "savyinvestor11&q... Click the link for proof
search.messages.yahoo....

If you have no rules or regulations regarding your bloggers to post on other forums or get their materials from other forums you should start now. What's the point of reading stuff on Seeking Alpha if it is just clips and pastes from another message board? Perhaps the new name for your website should be Seeking Articles as from other message boards? Please address this issue before you lose more and more viewers. Maybe an article about Seeking Alpha on the Wall Street Journal that your bloggers are also pumpers on other message boards would help your image.

[prescient11]

"First Prescident11 a self appointed Etrade pumper president of the message board who once said "I will not post here for a month". Guess what happened before that month? Yup you guessed it he starts posting again."

Great criticism. Lighten up francis. Are you an adult? Tell you what, why don't you point out any inaccuracy in the facts detailed above? Of course, you cannot.

This is America, and Seeking Alpha is a wonderful forum that accepts all entries, so why don't you submit your own "concerned" "skeptical" view of Etrade. Otherwise, just take your ball and go home junior. No one wants to listen to your whining and crying.

[anastos]

Ugh....

I have a small position in etfc and think it might get back in the 7-8 range. However, this broad is killing me.

[Ben Williams]

Let it fall and buy, buy, buy. Hear me now, believe me later, Cindy or not. Long term bull. I do own shares and call options in ETFC for full disclosure. Don't think it will rip anytime soon as noted before, but as a long term investment or as a takeover acquisiton, it is undervalued by at least $3/share in my opinion as of todays price range of $3.50 to $4. Thanks for eveyone's input, gives us all something to think about and helps weigh the good with the bad, which all smart investors do.

[lounge707]

I agree with Prescient11! If Cindy wants to give her view points on Etrade...why not? I'm getting sick of this "Etrade pumper buster" cry baby make such a big stink.

You don't have to agree with Cindy, thats fine, but when you start whining about Cindy's positive spin, I don't see why YOU are the one making a big deal. Cindy has only listed facts, and I applaud here ambitious writing. I look forward to Cindy's great article pieces because I'm long Etrade. If someone wants to write "WHY" they think Cindy is wrong, then please go ahead with FACTS---not teenage whining.

To CINDY: Go girl! I love your articles and I'm personally happy for your great COMMON SENSE approach! By the way, maybe taking a short vacation after all Etrade does explode up might sound nice. Cancun or Argentina anybody?

[VERONICA]

ORCA,
I'm not a chicken & I don't cluck, but I DO know how to make a buck. Say all you want, but I have done well following what I'm saying... Stay long on GOOD stocks and OCCASIONALLY take advantage of market dips to take some profit. ETFC, I'm betting, is a GOOD stock, based on the discernable facts. I realize there are other tactics and certainly other ways to make money, but this works for ME.

Cindy reminds me a lot of Georges Yared, who rode Dell, Akamai, Apple and Crocs to the top of the pile. (i was there too) She may fluff us excitables up a little to keep the interest level high, but she does represent the facts. As such, she's way okay by me.

SLICKFLICK, I agree with you about ETFC's recovery, which is why we're all here, right? I think you're pretty dead on in your assessment. I also think you're right about ORCA...a helluva writer and mischief maker. ORCA... come to the light side of the force...

Long & Strong
Veronica

[blah-blah]

This is probably the strangest set of comments I have ever seen.

ETFC is not a stock I own but I have other financials and they are getting hurt plenty as well. The only difference is I'm being paid a decent dividend(plus call option selling) to hang around and wait(almost all are Canadian and not at risk of a div cut).

I don't agree with Orca's doomsday comment 'Just suppose WM or C goes belly-up, or GE catches a cold to $23, or GM/F are collected to the Big Honcho in the sky, or the Naz craters, or the USD goes Zimbabwean' but I have a hard time holding something this depressed with no payout.

I will give the bulls here one thing though - the loyalty of ETFC's customers is something that rival's AAPL and that alone will probably pull them through.

[Ron Zorro]

I've held E*Trade stock off and on for most of the past eight years. My gains in my long position enabled me to get through the nightmare of paying two mortgages when I had trouble selling my house. Recently I took a small position at $4.81 a share. I may be guilty of wishful thinking but knowing how well E*Trade's business model works, I can't help but think E*Trade's stock value will rise again. It seems to me that naysayers like Orca are trying a bit too hard to convince us otherwise.

[fn4880]

Cindy, you’ve put together a very comprehensive article. Although, one omission: do you have any upbeat explanations regarding Citadel’s filing to sell their 90 Mil Etrade shares only six months after the hedge fund got it as part of a rescue package. If Citadel would share your optimism, would it rush to sell it’s nearly 20% Etrade’s stake acquired for the huge discount?

[JimmyGoodwin]

Etrade
Pumper
Buster

I think the only thing you've busted is yourself as JB-Maria in disguise.

[jbmaria]

Jimmy
Goodwin
Jun 11 07:34 PM
Etrade
Pumper
Buster

I think the only thing you've busted is yourself as JB-Maria in disguise.

*******

Sorry Jimmy,I don't do disguises,can barely keep up with posting under one ID.
I also disagree with ETFC PB ,I'm not a big fan of ratting out Cindy to the editors. I'd guess they already know and as long as this blog gets hits,they don't give a crap.

Also,Cindy,pres and numbersssss have a right to their silly opinions and as long as readers have been made aware of the group effort at pushing the stock up,then it becomes a caveat emptor affair,IMHO.

I haven't even read this epic work yet but I assume Cindy attributes some of the work to the pumper elves involved?

[jbmaria]

Almost forgot.
Shinnick and some of thee other commentators on ETFC have the cajones to show up and answer questions from readers but Cindy hides in the shadows for 9 articles so far,avoiding questions.
That seems a bit odd to me???

[trader4661]

Great Job Cindy,
I'm taking the currently presented opportunity to back up my truck and the extra one I rented just for the occasion.

Trader4661

[Ben Williams]

For real investors here, don't get caught up in the Cindy, E-trade pump busters feud. Bottom line, this IS a risky stock, but is near bottom at $3.50 and can only go down to zero, while the upside could easily return to $6 - 8 within 8 to 10 months if not sooner, depending on how the financial sector returns to normal after all the turmoil and how fast gas stabilizes. The probability of this stock not only making it, but returning from near death are getting better with each passing day. If it were going to die, they would have had the funeral on many different dismal days, but the trutht is, this stock is holding its own in this crappy market and is poised to pop. May take some time, may happen quicker. I am looking to July's numbers to see how much the bleeding has stopped and hopefully get the good pulse that business is picking up as it has been and everything is moving in the right directions. Don't need great numbers, just a sign to the positive should give investors confidence to know ETFC is a value as an investment and/or takeover bid. Buy, buy, buy as Jim Cramer would say, but know it is speculative and do your OWN HOMEWORK or stay away!!

[VERONICA]

I'm with you Ben. It is a risk, but I believe only because of financial market volatility. However, financials WILL recover, (they HAVE to), and ETFC IS a well-run company with money, customers and a great product.

So, if financials regain just a little investor confidence, ETFC will become a very obvious stand-out & we'll ride it to $8+ before the year end.

Thanks for listening.

VERONICA

[Cindy Reed]

Interesting how S&P Upgrade Released Today has similarities to Ms. Reed's posting:

"S&P UPGRADES SHARES OF ETRADE FINANCIAL TO HOLD FROM SELLFont size: A | A | Aundefined undefined | S&P Marketscope"

"We think management has been straightforward in their disclosure of exposures to troubled mortgage securities and has made strides to reduce this exposure. It has also been able to attract customers and post strong trading volume despite balance sheet issues. We expect loan loss provisions and valuation adjustments will continue to weigh on results, but we think ETFC has acted in a timely manner and should be able to sustain its business. We are raising our target price by $0.50 to $4.00, a discount to its book value, but keep our '08 estimate at a loss of $0.49."

Excerpts like "straightforward in their disclosure of exposures to troubled mortgage securities," "attract customers," "post strong trading volume despite balance sheet issues," "should be able to sustain its business." Many similarities and Ms. Reeds information was obviously composed prior to the S&P.

Appears that she is not very far from what analysts are beginning to see.

[[e-mail]]

I am an old timer yahoo board. I have been posting here since 2001 or so. I have been in and out of the stock always having preference for PONY. However when they stock was beaten on some bad news and lots hedge fund manipulation I sold all my holding and jumped into this stock. Last time it fell so much, I was too chicken to buy and only bought 5000 shares. I felt dumb when it kept going up and I kept saying it will go down again and I will buy more. This time around I will ride the storm and shall be smarted and own a lot more. I remember when there was huge convertable bond issuance(i believe it was around $500 million dollars and a market crash at the same time. We all thought the stock would never recover. History speaks for itself and history repeats itself. Next time around I expect to sell in the 30s by holding it around 3 years unless there is WW3.

[oregonduck]

Big upgrade by S&P- The stock is going down based on the broad stock market sell off. This is a buying opportunity. There are no financials performing "well" right now so its a matter of finding deals limiting exposure. There is almost NO bankruptcy risk for this company. Etrade holds very little commercial paper any more and it has all been fully disclosed, and is not buying any more commercial paper or originating any more loans. The etrade credit cards are serviced by an entirely different company and they contract with ETRADe with the right to use the name. They are well capitalized and well managed, with significant stockholder with a stake in the performance in the company that will not allow it to go bankrupt. The use of online trading is the wave of the future, as more and more people are trading online as a supplement to, as as a replacement to their brokers. (Its funny, I still have some of my portfolio managed by my broker--college savings plans and such-- and he still gives me stock tips. He trades ETRADE stock also)

Its not that I have an emotional attachment to etrade. I just think its a speculative investment that is undervalued based on its recent performance and real risk and therefore is a good investment for me based upon my income and my investment horizon and the rest of my portfolio.

[pcyhuang]

Thanks for your very thoughful and accurate comments.

[forwoodenboats]

Though I already had my position (the latest of many from 5 down to 2.18 & back up) established before I read Cindy's article, its always fun to sort through message board postings. It's not as colorful as in 2000-01 discussing OTC stocks on Raging Bull (as an ETrade customer, for what little its worth), but the same flags mean the same things.
On one side, multiple posts by a few individuals waving red flags trying to deflect attention from a comprehensive assessment and into a discussion about how other stocks in the sector are faring - as long as they're not doing well - and avoid directly taking on any of the DD Cindy provided, while trying to attack her instead.
One the other side, some folks who think this stock is going to go up, while acknowledging it's still a risk, one that they're ready to take.
And then there's that S&P upgrade.
I've been waiting for this dip :)

[Old Bull]

Cindy's capitalization of the word FREE is highly suspect (all that's missing is: "but wait..there's more!"). This kind of hype scares off a lot of potential investors. I happen to think your argument is sound, Cindy, but if you want a real bounce, don't scare off the sceptics with sales talk...let your facts speak for themselves.
I too love eTrade's platform. But the terror of getting my IRA out, as BK loomed, has left deep scars. With that lesson learned, my IRA is now split between several brokers. BUT, having said that, ETrade has done everything right since their screw-up: saturation advertising strategy and "1000 new accounts a day" slogan is brilliant. Their quality platform is still way, way ahead of the competition and helped them pull off the almost-impossible feat of stopping the exodus. They won't be getting my IRA back, but
I salute them for their recent strategy. If pumper's hype doesn't scare me away, I will make a modest bet on their great potential future.

[ezmaass1]

4woodenboats has an excellent point.

DO notice that nobody here seems to be attacking the "boat-load" (no pun intended, 4woodenboats) of facts she included here. Whether she got them from Yahoo posters or elsewhere, who cares?? For those people attacking her for getting facts from Yahoo posters, how ridiculous are you? WHY do you think forums like Yahoo exist? Ahhh... to share facts with one another. Cindy has taken it upon herself to compile it all and write up an article. At most, a few nods or references to the Yahoo posters is in order, but it's certainly not a sinful thing. Do you honestly believe other writers are devining their own facts or on the road doing their own research? HA!

The cake must go to "Etrade Pumper Buster" for the biggest child on the board, though. Your letter to SeekingAlpha is hysterical -- reminds me of an elementary school child writing a letter to Santa Claus. An awkward and poorly written "complaint" whining about Cindy writing too many positive pieces on E*Trade while there aren't enough others covering it??? Please, give me a break.

Look -- if you're a skeptic, don't invest. Or short. It's that simple. The author isn't asking for your sympathy. She isn't even asking you to invest. She's stating facts -- and LOTS of them. That's a heck of a lot more than you get from some of these posters with opinion-based arguments and doom-and-gloom propaganda, such as "what happens if Citibank goes belly-up." Zero facts -- just scare tactics. How did you guys ever make it through college?? Or did you not? How did you cite your references to support data in your arguments?? Or, again, did you not?

I'm personally a believer in E*Trade -- for all of the reasons Cindy has listed and more. But I do acknowledge the risks involved, and I don't see anyone saying it's risk-free here... just a potentially great investment. Since when did that become a crime?

[PokerDonkey]

I don't mind if she pumps it as long as her facts are researched and she discloses her position. I just don't want to hear "I told you so," in a year. I could pump any random stock and I would probably be right (eventually).

[Budman]

E-Trades is in first mtges at a 70% LTV? Based on when the loan was made or the value today? Where are these mtge's?? A 70% LTV when made sounds pretty good except that it might be at 110% at this time. Also, the HELOC's. Same thing. Made at 80% or 100% LTV they are basically worthless if the first forecloses whether it's in LA or Atlanta. No recovery on these - just take a walk.

[forwoodenboats]

Magman, I don't see how Cindy's capitalization of the word FREE should spook you when it is accurately applied to a new, innovative trading platform THAT NO OTHER BROKERAGE HAS.
Think about it a minute. Anything that entices investors to make more trades during the day AND steals investors away from other brokerages (why stay with a brokerage that isn't keeping up with technology?) has got to be a great money maker.
How many more trades might you make every month if you knew that you could pull out a blackberry & check on your bet/make another while you're at the tavern, mother in law's or the loo?
The blackberry is just one of the tools that are making things easier and faster for etrade customers - have you checked out Power Etrade Pro? I just today opened that puppy up- it's like comparing Jay Leno's jet powered motorcycle to a BigWheel.
The fact is, Etrade's platform makes trading easier, it's faster, cheaper, and the data you need to do your DD is at your fingertips.
It's really hard to overstate the importance of keeping up with the Joneses in the internet brokerage business, especially at a time when people are jonesing over their investments (Always!).

[bearfund]

orca, if WM or C goes belly-up (whatever that means in this intervention-first-ask... era) the only thing you're going to want is gold - maybe oil if you really buy the idea that oil is the new gold. And every smart investor has some of that in his portfolio for that very reason; stocks may go to zero; gold, never. Always better a 90% loss than a 100%. But how realistic is that scenario? I'll be the first to admit (I call myself bearfund for a reason) that many US banks today are insolvent, but I see little realistic chance of them being forced to recognise the fact before conditions improve for them, whether by raising more capital or by waiting for a macro breather. So if we constrain ourselves to plausible outcomes, I have to agree that ETFC is a buy for medium-to-long-term investors. Our author certainly is attached to this stock; good for her. If you disagree, it's probably better to ignore her than to post wild-eyed what-ifs. Oh, and GE at 23? That's not far from my buy price. I'll take 10,000 if we see it there. Even bears become bullish when the price is right.

[The RealExpert]

bearfund, for you or anyone to state that ETFC is a buy simply shows you have no idea about risk. Only a fool would buy financials here and ETFC is one of the riskiest at this point. The only exception might be for mutual funds because they have virtually unlimited capital and can compensate for losses.

If anyone wants to venture into the riskiest industry right now, you'd be best served by hitting those stocks with teh greatest volitility and volume, but for only short-term trading -WM and LEH.

As for the S&P upgrade, that is like Morningstar upgrading it. In other words, it means nothing. S&P doesn'y exactly have a great track record. If you will recall, one of the main reasons for the mess in the financials was due to the irresponsible ratings provided by S&P and other credit agencies.

[wisdomous]

who cares

buy if you like it, sell/short if you don't
but don't cry about it
and don't force your opinions onto others
it's a free country last time i checked

-from Canada

[[e-mail]]

I think everyone owes Cindy a big applause.

I like many others have criticized her relentless pumping, but when I criticized her, I was only criticizing her journalistic ethics, and with this latest article, it seems as though she took the time and effort to make sure she was presenting us with factual information containing relevance, logic, and substance.

Regardless of where she got her information from (people on the forums or from doing the research herself), she has been reiterated by S&P today which means that her info is probably sound and valid which leads me to believe that all the bears have been wrong all along.

At the end of the day, I dont really care if she was pumping the stock as long as she is right about her opinions which day after day it seems to be coming to light that she is indeed correct in her predictions.

I myself hold a long position in etrade, and more and more everyday am i tempted to back up the truck as cramer would put it. It seems like day after day the news coming out of etrade continues to be positive and reassuring.. not to mention all the facts presented today in this article.. I see no reason why someone would not want to take etrade as a spec play, the upside is off the charts, and it seems there is a floor built into this stock around 3.50-4.00.. and if etrade can get rid of its debt i see no reason why this couldnt be a 15-20 dollar stock again in a years time.. with that, i am willing to ride it to 0 if i have to, its the risk i am willing to take, and i am BETTING on etrade.

[Ben Williams]

While ETCC is dropping along with the other financials that are taking a beating, it is not dropping as bad. Another great report from the company showing growth and customers still returning back to the E-Trade Platform for the third consecutive monthly gains. This company is getting back on its feet in spite of the financial collapse that is hitting the marker. If they can survive and even grow in this environment, then think of how things will be when the market makes the U-turn upward for financials.

Long term ETFC bears beware, this company has turned the corner and IS going to make it. Loading up on more options and would consider loading the wagon with actual shares if it falls to $3.40 with the financials dropping as well. This is my speculation play of 2008 - 2009 for the long haul. Know your risk and know your reward and play accordingly. I have little doubt this company will rise to make us bulls some cash within the next 8 - 12 months.

[forwoodenboats]

122,527,895 short per today's report, probably more like 130m judging by the downward pressure, especially today's.
If etfc meets or beats -.15eps for this quarter, we could have a 6 day party.

[solarchampion]

You sound scared.


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