E*Trade (ETFC) Mortgage Business May Block Sale

E*Trade (ETFC) should start looking for a big investor. With a market cap of just over $2 billion, it may have to give up a big chunk of the company, but common shareholders may be better off.

Potential buyers of the discount broker like the company’s retail discount brokerage business, but they are being frightened off by the ETFC bank which holds mortgage-related securities. Loss in the value of these sent the broker’s stock down and are forcing a potential sale of the entire firm.

According to The Wall Street Journal, the government’s Office of Thrift Supervision could "demand that most of the proceeds of a sale be injected back into E*Trade’s bank, leaving little left over for E*Trade’s shareholders." Instead of the current share price of $5.33, common shareholders could get nothing.

Better to sell 50% of the company and try for a work-out than see the value of the company driven to zero. That is, of course, if anyone will put money in.

Douglas A. McIntyre