Nov. 12 (Bloomberg) — E*Trade Financial Corp. lost more than half its market value after the online brokerage forecast a decline in fourth-quarter earnings and a Citigroup Inc. analyst said the company may go bankrupt.

E*Trade will book “significant writedowns” this quarter for asset-backed securities that sank in value last month, the New York-based brokerage said in a Nov. 9 regulatory filing. Citigroup’s Prashant Bhatia wrote in a report yesterday that there’s a 15 percent chance the company will seek protection from creditors after poor management “put the viability of the franchise at risk.”

Chief Executive Officer Mitchell Caplan’s strategy of building E*Trade’s bank by tripling loans outstanding backfired as borrowers fell behind on payments and U.S. home prices declined. The U.S. Securities and Exchange Commission also began an informal inquiry on Oct. 17 “into matters related to the company’s loan and securities portfolios,” E*Trade said.

“A drop in the stock price this severe could prompt retail trading customers, who likely see the performance of E*Trade shares, to withdraw cash from their accounts,” Lehman Brothers Holdings Inc. analyst Roger Freeman wrote in a report to clients today. He has an “overweight” rating on the stock.

In a letter to customers posted on the company’s Web site, Chief Operating Officer Jarrett Lilien said E*Trade is taking “prudent measures” to shore up its balance sheet. The firm will remain “well capitalized” by U.S. banking standards even if it had to write down $1 billion of assets, he said.

E*Trade dropped $5.04, or 59 percent, to $3.55 at 4:20 p.m. on the Nasdaq Stock Market. The stock has fallen 84 percent this year, wiping out about $8 billion in market value. E*Trade’s market value is now almost a tenth of TD Ameritrade Holding Corp., its closest competitor.

Related Posts: