Cramer: "Harsh Words Will Cut ETFC, and the Market"
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Cramer: "Harsh Words Will Cut ETFC, and the Market"
"Harsh Words Will Cut ETFC, and the Market"
By Jim Cramer
RealMoney.com Columnist
11/12/2007 9:28 AM EST
"We can handle downgrades of Microsoft (MSFT - commentary - Cramer's Take - Rating) and Oracle (ORCL - commentary - Cramer's Take - Rating) by Merrill because they are adjuncts of financial services, a la Cisco (CSCO - commentary - Cramer's Take - Rating).
We can handle the KBW downgrade of Wachovia (WB - commentary - Cramer's Take - Rating) and the Mike Mayo $400 billion subprime loss piece.
We can handle Credit Suisse saying to sell some tech here.
Even the Meredith Whitney downgrade of the banks with the "Citigroup (C - commentary - Cramer's Take - Rating) under $30" kicker can be swallowed, particularly because we are oversold.
But this piece from Citigroup "Bankruptcy cannot be Ruled out -- Downgrading to Sell" about E*Trade (ETFC - commentary - Cramer's Take - Rating) is just a disaster. You simply cannot write a piece that says "higher probability of a run on the bank" without precipitating that event.
The breakdown of the deposits, many of which are not covered by the FDIC because of FDIC limits, is pretty sobering. E*Trade's been saying over and over that its asset-backed securities portfolio would not have to be liquidated and is actually a positive. But Citigroup says that liquidating the portfolio would wipe out the equity of the firm. Citigroup says the losses could be $5 billion on a liquidation.
The home loan portfolio at E*Trade is about as horrible as I have ever seen. The company has a $12.4 billion home equity loan portfolio, of which 60% does not have full documentation and 60% from 2006-2007 and 25% from Florida and California, with a provision for those loans that is much too low. Plus, 90% was purchased from third parties.
To me, that's a recipe for a total wipeout. I bet the vast majority of those loans are bad.
I don't know what to say. This is just a nightmare. Given the commodity nature of the industry's assets and this report, a run cannot be ruled out at all.
It's incredible that this portfolio of loans was put together at all, given the fact that E*Trade had a perfectly good online business worth far more than the stock price, ex the portfolio. Plus, with this piece this morning, the online traders are all going to know about the bad part of the business, and I believe many people will take their assets elsewhere.
The coup de grace in this piece: "no confidence in CEO." Mitch Caplan is a darn good CEO, but he has guided down five times in eight months.
This piece alone will make it so the market, which is badly oversold, will have a hard time gaining its footing. It will be tomorrow's headlines in the paper.
That's a two-day affair on top of a tremendous amount of bad news.
Rough out there.
At the time of publication, Cramer was long Citigroup. "
(in www.realmoney.com)
By Jim Cramer
RealMoney.com Columnist
11/12/2007 9:28 AM EST
"We can handle downgrades of Microsoft (MSFT - commentary - Cramer's Take - Rating) and Oracle (ORCL - commentary - Cramer's Take - Rating) by Merrill because they are adjuncts of financial services, a la Cisco (CSCO - commentary - Cramer's Take - Rating).
We can handle the KBW downgrade of Wachovia (WB - commentary - Cramer's Take - Rating) and the Mike Mayo $400 billion subprime loss piece.
We can handle Credit Suisse saying to sell some tech here.
Even the Meredith Whitney downgrade of the banks with the "Citigroup (C - commentary - Cramer's Take - Rating) under $30" kicker can be swallowed, particularly because we are oversold.
But this piece from Citigroup "Bankruptcy cannot be Ruled out -- Downgrading to Sell" about E*Trade (ETFC - commentary - Cramer's Take - Rating) is just a disaster. You simply cannot write a piece that says "higher probability of a run on the bank" without precipitating that event.
The breakdown of the deposits, many of which are not covered by the FDIC because of FDIC limits, is pretty sobering. E*Trade's been saying over and over that its asset-backed securities portfolio would not have to be liquidated and is actually a positive. But Citigroup says that liquidating the portfolio would wipe out the equity of the firm. Citigroup says the losses could be $5 billion on a liquidation.
The home loan portfolio at E*Trade is about as horrible as I have ever seen. The company has a $12.4 billion home equity loan portfolio, of which 60% does not have full documentation and 60% from 2006-2007 and 25% from Florida and California, with a provision for those loans that is much too low. Plus, 90% was purchased from third parties.
To me, that's a recipe for a total wipeout. I bet the vast majority of those loans are bad.
I don't know what to say. This is just a nightmare. Given the commodity nature of the industry's assets and this report, a run cannot be ruled out at all.
It's incredible that this portfolio of loans was put together at all, given the fact that E*Trade had a perfectly good online business worth far more than the stock price, ex the portfolio. Plus, with this piece this morning, the online traders are all going to know about the bad part of the business, and I believe many people will take their assets elsewhere.
The coup de grace in this piece: "no confidence in CEO." Mitch Caplan is a darn good CEO, but he has guided down five times in eight months.
This piece alone will make it so the market, which is badly oversold, will have a hard time gaining its footing. It will be tomorrow's headlines in the paper.
That's a two-day affair on top of a tremendous amount of bad news.
Rough out there.
At the time of publication, Cramer was long Citigroup. "
(in www.realmoney.com)
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