something else to brighten your day
After retiring the $450 million in 6.125% subordinated debt, E*trade has made a profit of over $400 million Issuing 25 million shares with a current market value of about 32 million dollars at around $1.35 a share to receive $18.00 a share has turned out to be a windfall for Etrade. In addition, E*trade will no longer be paying around 28 Million dollars a year in interest to service the subordinated notes.
It is amazing to see E*trade make over $400 million in profit when its market cap is only $725 Million. Of course, E*trade also took in a similar amount by selling about 3% of its firm to Scotia Bank for nearly 72% of it current market cap. Lest we mention the HBSC Indian brokerage deal that when added to the Scotia deal equals about 90% of E*Trade’s current market cap.
E*trade has also been reserving huge amounts against loss, far in excess of the industry wide average that total nearly $2 billion in cash. If the government stops the financial bleeding and buttresses the mortgage market, the need for those reserves against loss that total nearly 21/2 times E*trade’s current market cap in cash will diminish and Etrade will be able to return at least a third to a half of that cash reserve to the bottom line.
If E*trade ever receives $800 Million in TARP money from the Treasury at around 5% interest for five years, E*trade might be able to retire the Citadel debt and replace a 12+% interest rate with a 5% interest rate for servicing that debt.
Now we see that all of the online brokers, including E*trade, stand to profit from this current turmoil as investors withdraw money from mutual funds and trade more.
In my opinion, given the above discussion, the fact that E*trade’s bad debt is diminishing with each day that passes, and the fact that E*trade is reigning in expenses and debt service commitments, $1.35 per Etrade share seems rather low.
E*trade was the first to go transparent in 2007; it has been chugging along and turning itself around, while getting bashed by analysts all the way. E*trade has withstood as much as 25% of its shares being sold short.
I believe that Don Layton and his management team have done a fine job in reaching their goal to turn Etrade around. I expect that E*trade's goals will manifest, sooner rather than later. E*trade stands a good chance of showing a profitable quarter sometime in 2009.
AI
