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Subject :::~E*Trade Shares Fall, Analyst Says Bankruptcy Possible~:::
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Message Nov. 12 (Bloomberg) -- E*Trade Financial Corp., the online brokerage that underwrites mortgages, declined as much as 32 percent in New York trading after the company said earnings will fall short of forecast because of a drop in the value of some securities.

Rating cuts on $208 million of asset-backed securities last month spurred a bigger-than-expected reduction in their value, E*Trade said in a regulatory filing after the close of official trading Nov. 9. The drop will require the company to record ``significant writedowns'' this quarter, the filing said.

E*Trade will post a loss in the fourth quarter after setting aside $500 million in extra money for bad loans and writedowns, Citigroup Inc. analyst Prashant Bhatia, wrote in a report. Clients of the New York-based company's brokerage unit may shift their accounts to rivals, while deposits at the bank could erode, wrote Bhatia, who cut his rating on the stock to ``sell'' from ``hold.''

``The extent of poor risk management in our view, has put the viability of the franchise at risk,'' said Bhatia, in the report entitled ``Bankruptcy Risk Cannot be Ruled Out.''

Chief Executive Officer Mitchell Caplan's strategy of building E*Trade's bank by tripling loans outstanding backfired as more 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.

Shares Tumble

The company's shares sank to their lowest since May 2003 in trading before the open of U.S. exchanges, losing as much as $2.71 to $5.88 at 9 a.m. in New York. The stock has lost almost three-quarters of its value this year, wiping out about $7 billion in market value.

E*Trade is the worst performer among the 12 stocks tracked by the Amex Broker/Dealer Index. Shares of rivals Charles Schwab Corp. and TD Ameritrade Holding Corp. have advanced at least 10 percent this year.

E*Trade reported its first quarterly loss in five years last month and slashed its 2007 forecast because of rising costs for bad debts at the online bank. For the period ended Sept. 30, E*Trade lost $58.5 million, or 14 cents a share, compared with a profit of $153.2 million, or 35 cents, a year earlier.

E*Trade said 2007 profit would be between 75 cents and 90 cents a share, cutting its forecast for a fourth time this year. In September, the company estimated earnings of between $1.05 and $1.15 a share.

The company said in the filing that the value of some of its $450 million in asset-backed collateralized debt obligations had ``significant declines.'' E*Trade said it expects to remain ``well capitalized'' and will no longer provide an earnings forecast because of difficulty in valuing the securities.

``The writedowns will depend on future market developments, including potential additional downgrades, and the estimated fair values of these securities'' at the end of the year, E*Trade said.
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