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FleaBagger (31.07)

ETFC, part II (Revenge of the Nerd)

Recs

5

November 20, 2007 – Comments (2)

I actually dug up the filings and did the math, and everything. Basically:

ETFC is valued by the market at about $2B

ETFC's total asset face value is about $52B

ETFC's total liability face value is about $48B

ETFC's book value is, therefore, about $4B

ETFC has a subprime-threatened "Asset-backed Security" portfolio with a face value of about $3B

If we assume that write-downs wipe out a third of ETFC's endangered portfolio, they will be left with a BV of about $3 billion, PB < 0.67; that's not bad.

If we assume that write-downs wipe out half of ETFC's ABSP, they are left with BV of $2.5 billion, PB about 0.8; still not too scary.

If we assume the ABSP somehow drops to within a hairsbreadth of worthlessness (a pretty preposterously gloomy scenario, if you ask me), ETFC's BV becomes a little over $1 billion, and the PB is about 2. That's not appealing under the circumstances, but hardly worth all the panic.

Meanwhile, people who are rich enough to have more than the $500,000 covered by the SIPC are probably knowledgeable enough to have figured all this out anyway. I think E*Trade will be back in black before you know it.

Disclosure: I own ETFC in my real money portfolio.

2 Comments – Post Your Own

#1) On November 20, 2007 at 7:27 PM, AnomaLee (29.26) wrote:

That's assuming thay any leveraged positions they may still hold are resolved and will not need to be disclosed and further written off. If there weren't turmoil in the credit/lending sector this company would've announced a buyout already.

I do feel that E-Trade is a great company and a stalwarth in the brokerage industry. Their discount trading platform is unmatched by any other discount brokers offering of international markets.

That being said... Their most valuable assets right now are their clients accounts who can walk away at any given moment and I doubt will be worth anywhere close to $2 billion if they do face that 10%  chance of going under.

In five to seven years I bet this companies exposure overseas will vastly increase their revenues to foreign investors wanting U.S. exposure and the same is true for the inverse. I'd even bet it'll probably be trading in the mid to high teens or even $20, and the CEO will probably be on the cover of Forbes much like AT&T in its 7 year recovery if it is not bought out.

$18 -$20 or default... At $5 this is a very interesting long-term position or player for a buyout. Those are my assumptions on the stock, but I don't have the capital to risk or wait that long...

At $3.80 this stock is very appealing...

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#2) On November 21, 2007 at 6:56 AM, abitare (99.46) wrote:

The ETFC price is appealling. I almost gave ETFC an Outperform at the bottom.

I do think many people will move their money to other banks, as more banks come under pressure. Not sure where this ends. To be honest, I am not sure "stuffing money into the mattress" is a terrible idea? But www.everbank.com is worth a look, slightly better then stuffing the mattress?

Fool on!

Former ETFC Score Leader 

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