Etrade symbol: etfc
Citibank symbol: c
E*Trade could fetch $10-$11 a share: analyst
From:
http://www.reuters.com/article/marketsNews/idUKN2750830020071127?rpc=44NEW YORK (Reuters) - A sale of online brokerage E*Trade Financial Corp (ETFC.O: Quote, Profile, Research), which has seen its shares crushed by credit woes in the mortgage business, would likely fetch between $10 and $11 per share, according to a lowered estimate by investment firm Fox-Pitt Kelton Cochran Caronia Waller.
The price estimate is lower than the $18 per share estimate issued by Fox-Pitt last month.
"Given recent events, clearly an $18 (per) share takeover is no longer realistic," said analyst David Trone in a research note.
Analysts have said E*Trade will have to pursue strategic alternatives, such as a deal or sale of some assets, after large losses in its mortgage business.
Both TD Ameritrade Holding Corp (AMTD.O: Quote, Profile, Research) and Charles Schwab Corp (SCHW.O: Quote, Profile, Research) have said they might be interested in a merger, but have declined to say whether E*Trade could be a target.
E*Trade executives had been scheduled to participate in Fox-Pitt's financial services conference, slated to begin tomorrow, but over the last few days canceled their appearance, according to Trone's note.
A spokesperson for E*Trade declined to comment on the analyst's report and had no comment on the canceled engagement.
Chief Executive Mitch Caplan earlier this month canceled another presentation, at a Merrill Lynch banking conference.
"A deal is something we have expected for some time, particularly since mortgage woes have increased," Trone said in the note.
Trone, in an earlier research note, had predicted TD Ameritrade would be most likely to bid for the brokerage business, while its partial owner TD Bank Financial Group (TD.TO: Quote, Profile, Research) could go after E*Trade's banking assets.
However, in his note on Tuesday, Trone said he lowered the amount E*Trade is likely to garner for its brokerage business, and said it might not be able to sell its bank business at all.
"We now estimate (Ameritrade's) willingness to buy the brokerage (operations) at $10.63 (per) share," wrote Trone, in the wake of a "fear-driven outflow of accounts" earlier this month, after a Citigroup analyst's note that had floated the possibility that E*Trade could slide into insolvency.
Troubles have also mounted in E*Trade's mortgage business, with the company earlier this month projecting further write-downs on a $3 billion asset-backed securities portfolio and withdrawing a 2007 earnings forecast. The deterioration could make it difficult to find a buyer willing to pay for its banking arm.
"TD is now unlikely to pay for the bank (operations), assuming max(imum) impairment," said Trone, "although we believe it would be willing to take on the unit at a 'zero-basis.'"
Other analysts have said the complex nature of E*Trade's balance sheet, which combines banking and brokerage assets, will make it tough to split the two businesses.
E*Trade shares were off 4 cents at $4.56 in afternoon trading on Nasdaq, about 82 percent below a year high of $26.08.
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Wall Street Advances After Abu Dhabi Agrees to $7.5 Billion Investment in Citigroup
NEW YORK (AP) -- Wall Street rebounded Tuesday after the Abu Dhabi Investment Authority said it will invest $7.5 billion in Citigroup Inc. -- a vote of confidence for the nation's largest bank, which has suffered severe losses amid the ongoing crisis in the mortgage market.
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The Dow Jones industrials rose more than 200 points in yet another volatile session as investors were hopeful the financial sector can remain healthy despite the ongoing credit crisis. The banking industry has been battered in recent months as defaults on home loans have risen and rendered some mortgage-backed securities essentially worthless.
Major financial institutions, including Citi and its competitors, have had to book some $80 billion of writedowns on those holdings -- a trend that has left the markets nervous about the full extent of the damage from soured loans. Citi's ability to secure a capital injection raised hope others might be able to do the same.
"The Citi deal is certainly a relief after a series of negative news on Monday with respect to the financials," said Todd Salamone, director of trading at Schaeffer's Investment Research. Funds like Abu Dhabi's "that have plenty of cash may be viewed as a potential rescuer given the balance sheet troubles the banks are having. A weak dollar makes it that much more possible."
Still, the market showed some vulnerability to anyone raising the specter of a sagging economy, and that caused another day of big swings for major indexes. Concerns about further writedowns caused the Dow to fall 240 points Monday, bringing the blue chip index, along with the Standard & Poor's 500 index, down 10 percent from recent highs, a decline that signifies a correction.
Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said he won't be surprised if U.S. economic data over coming months is weak, and warned that recent central bank rate cuts have increased the risk of higher inflation. Meanwhile, Federal Reserve Bank of Chicago head Charles Evans said in a speech further turmoil in financial markets could cut into business investment and curb consumer spending on big-ticket items.
The Dow rose 215.00, or 1.69 percent, to 12,958.44 after being up nearly 250 points earlier in the session.
Broader stock indexes also moved higher, with the S&P 500 index up 21.01, or 1.49 percent, at 1,428.23, and crept back into positive territory for the year. The technology-heavy Nasdaq composite index up 39.81, or 1.57 percent, at 2,580.80.
The seesaw trading so far this week is typical of what investors have seen for months. The market has been erratic as investors have struggled with and tried to overcome concerns about the banking sector, the credit markets, consumer spending, energy prices and the overall economy.
A pullback in oil prices aided the market's gains. A barrel of light, sweet crude dropped $3.28 to $94.42 on the New York Mercantile Exchange on expectations that the Organization for Petroleum Exporting Countries will raise production at its Dec. 5 meeting.
Government bond prices fell. The yield on the 10-year Treasury note jumped to 3.94 percent from 3.85 percent late Monday. Gold prices fell as the dollar rebounded.
The market showed little reaction to a report from the Conference Board that its Consumer Confidence Index dropped to its lowest point since October 2005. The index fell to 87.3 for November, down almost 8 points from the revised 95.2 during October -- and below analyst expectations for a reading of 91.5.
Instead, most of the focus was on the financial sector after the Citigroup announcement late Monday.
Abu Dhabi's purchase of a stake in Citigroup will make the city-state one of the bank's largest shareholders. Sheik Ahmed Bin Zayed Al Nahayan called Citi "a premier brand and with tremendous opportunities for growth." Citigroup shares rose 52 cents to $30.32.
Brokerage stocks were able to brush off some pressure after Standard & Poor's downgraded Morgan Stanley and Merrill Lynch & Co. to "sell," saying further deterioration in the mortgage securities market has added to pressure on the value of the investment banks' asset-backed securities. But that news did little to faze the market's enthusiasm.
S&P expects Morgan Stanley will take a $4.2 billion charge, up from an earlier $3.7 billion estimate and projected Merrill will write down 25 percent to 30 percent of its $21 billion of such assets in the fourth quarter. Still, Morgan Stanley shares jumped $1.85, or 3.9 percent, to $49.80, while Merrill shares added $1.84, or 3.6 percent, to $53.07.
"While these announcements from the financial industry are continuing to unsettle investors, the lower dollar has put the U.S. in the position of being for sale at attractive prices, so Abu Dhabi can come along and buy an interest in Citi," said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, Calif. "Anytime you have corporate action, that's one of the strong bull arguments" for stocks.
The Russell 2000 index of smaller companies rose 8.20, or 1.12 percent, to 743.27.
Advancing issues outpaced decliners by nearly 3 to 2 on the New York Stock Exchange, where volume came to 1.65 billion shares.
Overseas stock markets ended mixed. Britain's FTSE 100 fell 0.64 percent; Germany's DAX index lost 0.48 percent and France's CAC-40 declined 0.44 percent. In Asia, Japan's Nikkei stock average closed up 0.58 percent. Hong Kong's Hang Seng index fell 1.51 percent.
