Top 74%
I would like to direct your attention to this excerpt from:
http://online.wsj.com/article/SB121805947661818327.html
"An analysis prepared for The Wall Street Journal by the Federal Deposit Insurance Corp. shows that 0.91% of prime mortgages from 2007 were seriously delinquent after 12 months, meaning they were in foreclosure or at least 90 days past due. The equivalent figure for 2006 prime mortgages was just 0.33% after 12 months. The data reflect delinquencies as of April 30."
And here is ETFC's exposure. The 2007 loans are doing BETTER than the 2006 thanks to their tightened standards. This excerpt is from their Q2 conference call.
"First, our 2007 loan vintage represents only 11% of our total home equity loan portfolio at quarter end. We believe this is less than most other firms to which we are often compared.
Second, we tightened our credit criteria for loans purchased during 2007 to significantly reduce our exposure to loans with CLTVs in excess of 90%, loans that have proven to be exceedingly high risk.
Third, in quality, the 2007 vintage has been outperforming industry benchmarks and, when compared to our own 2006 vintage, it's performing about 20% better in a more difficult environment.
This limited exposure to the 2007 vintage is core to our expectation for reduced loan losses later in 2008 and beyond.
With that, I'll turn it back to Don for some additional comments."
Concentrated DD on ETFC (and do your own DD).
- Big short position that will need to cover at some point
- Volume has dropped way, way down from recent averages making a short cover hard to do.
- They have NO subprime loans. None. All sold to Citadel.
- Reiterating.. their 2007 loans are doing BETTER than 2006. That's amazing IMHO considering the industry average is 3x the delinquencies for 07 vs 06.
ETFC has been trading in a strange +/- $.10 range as of late. There are lots of theories about it being "held" there for certain futures calls. I can't really comment on that which is hidden and speculative to begin with.
Overall point - shorting the financials is the beaten path for profitability of late but I like to look for bias. It seems pretty clear to me that ETFC is still under the bankruptcy shroud from the Citi
analyst call of "possible bankruptcy" back in late 2007. They are provisioning well, have good transparency, and have a growing retail side. Some dilution is happening but this stock, in my opinion, is, while risky, situated to give some great returns over 1-3 years.
Top 97%
ramigabai
Aug 08 at 11:54 ET
so basically you're suggesting to buy ETFC?
Top 1%
guliamo
Aug 09 at 3:23 ET
I've followed your ETFC buying logic for the past few weeks and think you are absolutely right.
I would like to add to this that one of my favorite things about ETFC is that the steep decline in stock value doesn't carry with it the problems other banks are having by way of dismissing personal, office space etc..
Etrade is a web site. Think about what citibank (C) still has to go through.. it needs to fire employees, loose office square footage, rearrange furniture etc.. all these are costly moves that will take years to complete, not to mention a re-org on this scale which may not be perfectly executed and cost the company some more.
Etrade is free of all of that.. they sold some assets, bought liquidity and there are no surprises on the horizon as far as I'm concerned.. just need to hold on to the stock until people realize - "hey, this company is cheeeep!"