Etrade in trouble?

[Tocqueville]

Etrade seems to be in trouble from their holdings of securities backed by home loans. They are trading at 3.55 now. The news article speculates that users with greater than 100k accounts may consider lowering their accounts to the FDIC insured limit. An early warning sign of a bank run? It seems the online banks play a little faster and looser than the rest. Thoughts?

Shares of E-Trade fell 4.33, or 50 percent, to $4.26 in morning trading. Shares had traded between $8.02 and $26.08 during the past year.

E-Trade holds about $3 billion in asset-backed securities in a portfolio. Much of the portfolio is invested in securities backed by mortgages, which have increasingly gone into default in recent months, reducing the value of the securities.

http://biz.yahoo.com/ap/071112/apfn_..._the_gate.html

[FRED]

Re: Etrade in trouble?

Etrade seems to be in trouble from their holdings of securities backed by home loans. They are trading at 3.55 now. The news article speculates that users with greater than 100k accounts may consider lowering their accounts to the FDIC insured limit. An early warning sign of a bank run? It seems the online banks play a little faster and looser than the rest. Thoughts?

http://biz.yahoo.com/ap/071112/apfn_..._the_gate.html

Like this one:

Failed Bank Information
NetBank, Alpharetta, GA, Closing Information

On September 28, 2007, NetBank, Alpharetta, Georgia was closed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. All insured depositors are now customers of ING Bank, fsb (ING DIRECT), member FDIC. No advance notice is given to the public when a financial institution is closed.

The web site makes it look like nothing happened.

Here's what happened to depositors.

[huntercav]

Re: Etrade in trouble?

Since Internet Banking is being discussed, does anyone have any experiences with EverBank? They have won several awards from MSM publications but I must say my dealings with their staff via the phone weren't very satisfying. I asked if their PMs pooled accounts were audited by third parties to verify the holdings. The response was silence and then incredulity that I felt a need to ask. In the end, the rep. I spoke with wasn't able to answer the question. Isn't third party verification standard practice at places such as BullionVault and GoldMoney etc.?

In any event, that conversation has caused me to rethink opening an account with them.

[Ant]

SIPC Insurance?

With regard to E-Trade: does anyone here know anything about SIPC *brokerage* account insurance?

As part of my campaign to better manage my family's finances and get over my irrational(?) fear of financial institutions I opened a brokerage account with E-Trade in January, and they currently hold a non-trivial percentage of my net worth.

I know that:

a) brokerage accounts are separate and "fire-walled" from the banking operation which has gotten itself into trouble and

b) brokerage accounts are insured by the SIPC to 500k.

However on hearing the rumors about E-Trade this weekend I wanted to make sure I had read the fine print, so I spent some time reviewing the SIPC website. A few things concern me, one of which is the following exclusion:

"...The cash and securities -- such as stocks and bonds -- held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933."

Being a relative newbie, what I am wondering specifically is this: because I subscribe to the basic ITulip thesis, a number of the investments I hold in this account are commodity and currency-related ETFs. I know that many of these use various futures contracts as primary investment vehicles. Are these investments protected or not?

Any newbie-guidance sincerely appreciated. Thanks.

Ant

[Tulpen]

Re: Etrade in trouble?

The value of the investment is obviously not protected. However you are insured in case the instruments of those investments, eg. the ETFs (up to a given limit) are subject to bankruptcy proceedings.

Note as well that in case of bankruptcy, in the unlikely event there is no brokerage firm who makes a deal to take over the accounts, which by the way would be, in my opinion, the best option for the account holders, despite the seemingly contrarian view presented in a link from an earlier posting, the SIPC will handle the case and it might take 1 to 3 months to receive the instrument and likely a longer period if there is a case of fraud. So that means you have no ability to sell, or cover on, these instruments for that time period. Be aware of this risk and evaluate if some risky instrument should be liquidated.

Marginable accounts have some theoretical risk as well. In case of fraudulent actions by the brokerage firm, your marginable assets could be at risk as well. But this is highly unlikely to happen.

One note, with regard to the common usage of so-called sweep investments on brokerage accounts, which applies not just for E*Trade customers but for all brokerage firm customers is this:

Beware that if the sweep investment carries significant amount of instruments like CDO's or other "hand grenades" you could lose some of the principal investment given the current problems with those instruments.

For legal advice consult a laywer.

[GRG55]

Re: SIPC Insurance?

With regard to E-Trade: does anyone here know anything about SIPC *brokerage* account insurance?

As part of my campaign to better manage my family's finances and get over my irrational(?) fear of financial institutions I opened a brokerage account with E-Trade in January, and they currently hold a non-trivial percentage of my net worth.

I know that:

a) brokerage accounts are separate and "fire-walled" from the banking operation which has gotten itself into trouble and

b) brokerage accounts are insured by the SIPC to 500k.

However on hearing the rumors about E-Trade this weekend I wanted to make sure I had read the fine print, so I spent some time reviewing the SIPC website. A few things concern me, one of which is the following exclusion:

"...The cash and securities -- such as stocks and bonds -- held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933."

Being a relative newbie, what I am wondering specifically is this: because I subscribe to the basic ITulip thesis, a number of the investments I hold in this account are commodity and currency-related ETFs. I know that many of these use various futures contracts as primary investment vehicles. Are these investments protected or not?

Any newbie-guidance sincerely appreciated. Thanks.

Ant

This is a lay person's view (not a lawyer's). If there is a problem who the hell cares if there is govt insurance? What are the chances it may take months (years?) to unravel the mess and get paid, and during that time you can't get access to your money or make any changes to your holdings?