NEW YORK — Shares of E-Trade Financial Corp. plunged in early morning trading Monday as investors worried over a Friday announcement the company would take larger-than-expected writedowns on its holdings of securities backed by home loans.
Shares of E-Trade fell 4.33, or 50 percent, to $4.26 in morning trading. Shares had traded between $8.02 and $26.08 during the past year.
Citi Investment Research analyst Prashant Bhatia cut E-Trade's rating to "Sell" from "Hold." Bhatia said there is a 15 percent chance E-Trade will have to declare bankruptcy and the company may be forced to sell loans and securities at a significant discount.
Bhatia said clients could also close deposit accounts, reducing the company's funding. Half of deposit accounts, representing about $15 billion, are higher than the Federal Deposit Insurance Corp.'s $100,000 threshold. Those are the most likely accounts to be closed if customers are worried about the company's future, Bhatia said.
E-Trade holds about $3 billion in asset-backed securities in a portfolio. Much of the portfolio is invested in securities backed by mortgages, which have increasingly gone into default in recent months, reducing the value of the securities. E-Trade did not disclose how big a writedown it would take in the fourth quarter.
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