possible bankruptcy in usa

Lucky ANZ bought etrade out in aus

Nov. 12 (Bloomberg) -- E*Trade Financial Corp. lost more than half its market value after the online brokerage forecast a decline in fourth-quarter earnings and a Citigroup Inc. analyst said the company may go bankrupt.

E*Trade will book ``significant writedowns'' this quarter for asset-backed securities that sank in value last month, the New York-based brokerage said in a Nov. 9 regulatory filing. Citigroup's Prashant Bhatia wrote in a report yesterday that there's 15 percent chance the company will seek protection from creditors after poor management ``put the viability of the franchise at risk.''

Chief Executive Officer Mitchell Caplan's strategy of building E*Trade's bank by tripling loans outstanding backfired as borrowers fell behind on payments and U.S. home prices declined. The U.S. Securities and Exchange Commission also began an informal inquiry on Oct. 17 ``into matters related to the company's loan and securities portfolios,'' E*Trade said.

``A drop in the stock price this severe could prompt retail trading customers, who likely see the performance of E*Trade shares, to withdraw cash from their accounts,'' Lehman Brothers Holdings Inc. analyst Roger Freeman, who has an ``overweight/neutral'' rating on the shares, wrote in a report to clients today.

`Well Capitalized'

In a letter to customers posted on the company's Web site, Chief Operating Officer Jarrett Lilien said E*Trade is taking ``prudent measures'' to shore up its balance sheet. The firm would remain ``well capitalized'' by U.S. banking standards even if it had to write down $1 billion of assets, he said.

E*Trade dropped $4.89, or 57 percent, to $3.70 at 1:33 p.m. on the Nasdaq Stock Market. The stock has fallen 83 percent year, wiping out about $8 billion in market value.

The company is the worst performer in the 12-member Amex Securities Broker/Dealer Index this year, followed by Merrill Lynch & Co., which ousted CEO Stan O'Neal last month after reporting a record third-quarter loss. Merrill shares are down 40 percent.

Shares of E*Trade competitors Charles Schwab Corp. rose $1.30, or 5.9 percent, to $22.53 in Nasdaq Stock Market trading, while TD Ameritrade Holding Corp. climbed $1.08, or 6 percent. For the year, Schwab has advanced 21 percent and Ameritrade has risen 18 percent.

The rivals ``would benefit from any customer fallout,'' Fox- Pitt Kelton Cochran Caronia Waller analyst David Trone, who has an ``in line'' rating on E*Trade shares, wrote in an e-mail. ``Plus, if Ameritrade buys E*Trade's brokerage, then the price just got a lot smaller.''

`Run on the Bank'

Bhatia estimated that E*Trade will post a loss in the fourth quarter after setting aside $500 million in extra money for bad loans and writedowns. Clients in the company's brokerage unit may shift their accounts to rivals, while deposits at the bank could erode, said Bhatia, who cut his rating on the stock to ``sell'' from ``hold.''

Citigroup is downgrading E*Trade ``based on the higher probability of a run on the bank,'' Bhatia said.

``The management team is focused on serving our customers as we combat the market reaction to the irresponsible comments included in the recent Citigroup analyst report,'' E*Trade spokeswoman Pam Erickson said in an e-mailed statement. ``We take exception to the sensationalism based on unfounded speculation.''

`Significant Writedowns'

Rating cuts on $208 million of asset-backed securities last month spurred a bigger-than-expected reduction in their value, E*Trade said in the filing. The company said it expects to record ``significant writedowns'' this quarter and will no longer provide an earnings forecast because of difficulty in valuing the securities.

E*Trade reported its first quarterly loss in five years last month and slashed its 2007 forecast because of rising costs for bad debts at the online bank. For the period ended Sept. 30, E*Trade lost $58.5 million, or 14 cents a share, compared with a profit of $153.2 million, or 35 cents, a year earlier.

E*Trade said 2007 profit would be between 75 cents and 90 cents a share, cutting its forecast for a fourth time this year. In September, the company estimated earnings of between $1.05 and $1.15 a share.

The company said in the filing that the value of some of its $450 million in asset-backed collateralized debt obligations had ``significant declines.''

``The writedowns will depend on future market developments, including potential additional downgrades, and the estimated fair values of these securities'' at the end of the year, E*Trade said.