By Mike Caggeso
Associate Editor
Facing a surge in account withdrawals, wounded online broker E-Trade Financial Corp. (ETFC) took out an ad in the Wall Street Journal, assuring account holders that the company is not going to file for bankruptcy and that their money is protected by the Federal Deposit Insurance Corp. (FDIC).
The public relations move puts the cherry on E-Trade's woeful year - highlighted by a 59% drop in stock value on Nov. 9.
Thankfully for E-Trade, the Journal returned the favor by reporting that bank failures are rare. Despite 2007 being a nightmare year for banks, only two of the 8,600 FDIC-insured banks have failed - Internet-only savings and loan NetBank and Metropolitan Savings Bank of Pittsburgh, the Journal said. The FDIC was created in 1933 after the Great Depression sank a number of banks.
E-Trade's troubles have prompted a possible buyout from rival TD Ameritrade Holding Co. (AMTD). Speaking with CNBC TV Friday, TD Ameritrade Chief Executive Officer Joseph H. Moglia didn't confirm the companies were in buyout talks, but spoke of his company's course of strategy should it go after E-Trade.
"We like their retail business but we must figure out a way that makes sense for both sets of shareholders," Moglia said. "This is not easier to figure out today than it was a year ago."
And on Thursday, Charles Schwab & Co. Inc. (SCHW) CEO Charles R. Schwab expressed interest in buying E-Trade's brokerage accounts, but not it's banking business. Schwab made a name for itself during the bull market of the early 1990s, positioning itself as the first real high-profile discount broker. And Schwab himself, as the founder and CEO, used the name commonality (himself and the company) to great effect in the company's marketing efforts. Schwab has never really looked back.
Analysts at Credit Suisse Group (CS) on Friday maintained their "Outperform" rating on Schwab, while boosting their earnings estimates for the company and their target price for its shares.
The target price was boosted from $26 to $28. The shares closed Friday at $23.58. From Friday's close, the higher target price would represent a return of 19%.
In their research note, the Credit Suisse analysts said Schwab has "significant opportunities" to grab market share in the managed assets market. The banking and brokerage house's high-yield checking account, introduced this year, has already brought in $1 billion in assets, the analysts wrote.
Schwab is expected to achieve low double-digit revenue growth. Couple that with good cost controls and Schwab could end the year with pre-tax margins of more than 40%. The analysts boosted their 2008 earnings per share from $1.17 to $1.20. They also boosted their target price from and continued cost control in 2008 and exit the year with pretax margins of more than 40%, Credit Suisse adds. The EPS estimate for 2008 has been raised from $1.17 to $1.20.
News and Related Story Links:
- Wall Street Journal:
What the FDIC Protects. - CNNMoney:
TD Ameritrade Eyes E-Trade Retail Unit. - The San Jose Mercury News/The Associated Press:
Brokerage, Bank Accounts Deemed Safe.
- Newratings.com:
Charles Schwab "Outperform," Target Price Raised.