E*Trade's Mortgage Losses Lead to Customer Exodus

A few days ago, a Citibank analyst put E*Trade’s stock (ticker: ETFC) on their “Sell” list, and went so far as to declare the firm a candidate for bankruptcy.  The stock price fell off a cliff on Monday, though it has recovered some of the ground lost in the last few days, and fired up takeover chatter once again.

The other activity fired up was the flight of customer assets.  Several competitors have been in touch with me this week to report a huge uptick in new accounts, primarily attributable to E*Trade customers getting their assets out.

I dropped into the local Fidelity office today, where a manager said that they have had over $150 million moved from E*Trade to Fidelity (http://www.fidelity.com) since Monday in the San Francisco Bay Area alone.  Nationally, he says the total is close to $1 billion.  ONE BILLION!  I was amazed by that figure. 

Don Montanaro at TradeKing (http://www.tradeking.com) says TradeKing is averaging 10 calls per hour since Monday morning from people identifying themselves as E*Trade account holders with concerns about their assets and who are looking for a safe place to put their money.  Nearly one-third of TradeKing’s online customer service chat sessions have been taken up by E*Trade customers looking for more information.  Callers specifically seem to be hunting for brokerages outside the sub-prime arena that will not cost them a large increase in trading fees.  And some clients holding both E*Trade and TradeKing accounts have already begun the process of transferring assets from E*Trade into TradeKing accounts.

At optionsXpress (http://www.optionsxpress.com), the new accounts desk is also extremely busy helping E*Trade customers move their accounts. 

So, hould E*Trade customers jump ship?

E*Trade officials say the discount broker and banking operation is in no danger of going bankrupt. Corporate Communications Vice President Pam Erickson said via e-mail: “We take exception to the sensationalism based on unfounded speculation,” referring to the Citigroup report that spooked the market.

Sandler O’Neill principal Richard Repetto said, “Customers should generally remain calm. The broker is insured by SIPC customer insurance and the bank by FDIC. I think the customers with balances above the levels covered by the insurance should not panic as [E*Trade] has alternatives to fund and support their bank and broker.” Repetto is saying that customers don’t have to worry about losing their assets above the SIPC/FDIC coverage level because ETFC will cover it and won’t go bankrupt.

SIPC insurance covers up to $500,000 in securities in each customer account, while FDIC insurance covers up to $100,000 in cash.

Posted by on 11/14 at 03:17 PM

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