Something’s Rotten in the State of E*Trade
When a fairly new company (E*Trade began life in 1996) can wipe $2.2 billion off it’s market value, write off somewhere in the region of $1 billion in assets and the President of the company can sill claim that E*Trade remains “well capitalized by regulatory standards” and would continue to be so even if it absorbed an immediate write-down of more than $1 billion, somethings very wrong. Either the regulatory standards need changing, or the company has been overcharging it’s customers.
When you fly high, you crash hard and E*Trade is looking a good candidate as the first casualty in the ongoing subprime crisis. Shares fell to $3.55, back to their August 2002 level representing an 84% year-to-date drop, following a rush of downgrades by Wall Street analysts. Money-market funds are normally considered among the safest places for investors to park their money. It’s extremely unlikely that investors in money-market funds would lose their money, in part because some fund-management companies are providing a backup to guarantee that any SIV losses are absorbed by the parent company, not fund investors.
“The mortgage black hole is, I think, worse than anyone thought,” said Tony James, president of private-equity firm Blackstone Group, in a call with analysts yesterday.
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