E*TRADE Can't Find M&A (ETFC, GS, SCHW, AMTD, MS)

E*TRADE Financial Corporation (NASDAQ: ETFC) was one we had on the calendar because this was the day that it was due to meet with its Goldman Sachs (NYSE: GS) as its financial advisor for conducting a review of strategic alternatives.  Unfortunately, E*TRADE’s great strategic plan is going to be to continue on a path all on its own.  This move is going to be viewed as a huge disappointment by those investors who believed that Charles Schwab Corporation (NASDAQ: SCHW) or TD Ameritrade Holding Corporation (NASDAQ: AMTD) were likely acquirers.

Previously, we had suggested that Goldman Sachs Group Inc. (NYSE: GS) or even Morgan Stanley (NYSE: GS) could have been considered as possible acquirers since they had become bank holding companies yet had zero banking operations.  That time has long-passed that either Goldman Sachs or Morgan Stanley would be potential acquirers.

E*TRADE’s review of strategic alternatives started in early August with an intent to maximize shareholder value.  One strategy was a possible sale.  The company’s noted, “…the Board unanimously determined that the continued execution of the company’s business plan is currently the best alternative for increasing stockholder value.”

Steven Freiberg, CEO and Interim Chairman also noted, “We will remain focused on delivering the best investing experience to our customers, strengthening our brokerage business, continuing to improve the performance of our loan portfolio and enhancing our franchise.”

The board of directors must have been looking at its stock charts upside down because continuing its path as is to maximize shareholder value hasn’t worked.  In July this was a $16.00 stock in hope that a deal would come.  Shares closed down 3.4% at $9.48 today, and the after-hours session has E*TRADE down another 4% at $9.10.

E*TRADE got far too creative during the mortgage boom and when the bubble popped it nearly assassinated this company.  Now E*TRADE continues to try to wind down many of its old legacy loans and accounts, and while things have improved there the company has not been able to walk away entirely from its prior follies.

It seems that buyers must have felt the liabilities could still be an unknown or that the black hole just goes too deep.  Its core business is an attractive one, but right now E*TRADE cannot even make good money on customers cash deposits just like its peers with short-term rates at next to zero.

E*TRADE has to remain on its own, and those who were pressing for a buyout will just have to invest in the company based upon its own internal merits.

JON C. OGG