E*Trade Expects More Write-Downs
By ANDREW EDWARDS and GEOFFREY ROGOWNovember 9, 2007 5:25 p.m.
GOIH Commentary----
Bankruptcy Looming for ETFC as we reported on Thursday of this week.
E*Trade Financial Corp. late Friday said it expects to record further write-downs on its $3 billion in mortgage-backed securities holdings in the fourth quarter, as the market for the securities continues to deteriorate.
E*Trade's shares recently fell 13% in after-hours trading.
The New York discount online brokerage said its total exposure to collateralized debt obligations of asset-backed securities and second-lien securities at Sept. 30 was about $450 million, including about $50 million of "AAA" rated asset-backed collateralized debt obligations, or CDOs, that were downgraded to junk status.
CDOs are instruments that bundle different kinds of risk, and some include pieces of bonds backed by mortgages given to subprime borrowers.
In addition, the company said the "deterioration observed since September 30" will likely result in write-downs that exceed previous expectations, noting investors should no longer expect these earnings levels to be achieved.
The company said it expected the declines in fair value to result in further securities write-downs in the fourth quarter, adding it will no longer provide earnings expectations for the rest of the year.
On Oct. 17, the company reported a third-quarter net loss after writing down nearly $200 million worth of mortgage-backed securities squeezed during the summer's credit crisis.
The company, one of the biggest online brokerages, at the time also lowered 2007 guidance because of "the possibility of further credit deterioration."
E*Trade uses some $40 billion of customer cash from its bank and brokerage to make investments, including in asset-backed securities and CDOs.
Separately, E*Trade disclosed that the Securities and Exchange Commission is conducting an informal inquiry of the company's loan and securities portfolios. The company is cooperating with the SEC inquiry, which began Oct. 17, according to disclosure in the company's third-quarter report.