E*Trade In Deep Trouble?

Posted by Kris | Wednesday, June 17, 2009 | | 0 comments »

E*Trade seems to be in trouble. The first of a major online brokerage firm to be in such deep financial woes.

E*Trade Financial Corp. (ETFC) will sell $400 million in stock as it looks to exchange more than $1 billion of existing notes and raise capital.

E*Trade has also suspended its $150 million effort to sell stock directly into the market, which was unveiled last month. The company raised net proceeds of about $63 million by selling nearly 41 million shares under that program. E*Trade's market capitalization as of Tuesday was about $1 billion.

Shares were recently down 15% at $1.40 in premarket trading as the company also projected second-quarter loan-loss provisions of $375 million to $450 million and projected net charge-offs of $375 million to $400 million. The first quarter's figures were $454 million and $334 million, respectively.

The bank and online broker has been struggling under a heavy debt burden. The company is still awaiting word from the U.S. Treasury Department on an $800 million investment from the Troubled Asset Relief Program to offset mortgage woes in its banking unit.

E*Trade said Wednesday the proceeds from the offering would provide equity capital for E*Trade Bank and for other corporate purposes.

E*Trade will offer to exchange more than $1 billion of new zero-coupon convertible debt for all of its 8% senior notes due 2011 and part of its 12.5% springing lien notes due 2017. The company said that would "significantly reduce (its) debt-service burden" by getting rid of the higher costs related to those securities. The convertible debt will mature in 10 years and convert into common stock between $1 and $1.20 a share, based on the conversion price.

The company's largest stock and bond holder, Citadel Investment Group LLC, has said it will participate in both the stock offering and exchange transactions. Citadel will buy either $50 million or $100 million of stock, depending on the offering price. It will also participate in the debt-exchange program for up to $800 million of long-term E*Trade debt.

Meanwhile, E*Trade also said average daily revenue trades rose 3.9% in May from April and jumped 34% from a year earlier. Total customer assets rose 5.8% from April, but were down 27% from a year earlier amid the stock market's slide.

The company saw 23,106 net new accounts in May, bringing the total at the end of the month to 4.5 million.

E*Trade said delinquencies of 30 to 89 days in its home-equity portfolio - its greatest exposure to loan losses - fell 10% from March 31 to May 31. Delinquencies of 30 to 179 days fell 14% in the same period.