GOIH's Capital Markets Unit is undertaking a detailed analysis into the publicly filed financial statements of Etrade. We are reviewing the Form 10Q and the Form 10K to make a determination of the credit quality of the assets in Etrade's Money Market Fund.
We suspect that Etrade used AAA rated mortgage backed securities as collateral in its money market fund and depending on the value, i.e., marked to market, the collateral may be worth substantially less than that claimed.
Much of E*Trade's profit in recent years has come from home loans, which make up about half of its assets.
"People look at E*Trade's mortgage business, and say, 'They built up that business rapidly,' and so people are thinking there could be problems in that portfolio and assets could be written down," said Peter Kovalski, analyst covering financial stocks at Alpine Woods Capital Investors, which has $12 billion under management and owns E*Trade shares.
Its mortgage portfolio of about $30 billion mostly consists of third-party loans bought from lenders or brokers. E*Trade only originated $1 billion of the loans, Chief Executive Mitch Caplan told investors during a second-quarter earnings call recently.
E*Trade also said at the time it was tripling its provision for loan losses to $30 million from the year-ago quarter -- a sign it expects loan losses to increase.