E*Trade Crash a Boon for the Likes of Zecco?

13 Nov

News of E*Trade Financial’s stock collapse on Monday made me wonder if there is an opportunity for new up-and-comers in the stock brockerage market such as Zecco to poach fleeing customers.

If so, what are the best short-term tactics to attract them over?  Perhaps an easy “migrate your account” process with step-by-step guidance on the main page?

E*Trade Financial is a leader in the new generation of Internet-only lenders. But its stock got crushed Monday amid fears about a distinctly old-fashioned problem: a run on the bank.

Shares of E*Trade lost more than half of their value after the company said it expected additional asset write-downs and an analyst suggested that it might be forced into bankruptcy protection. While the bank assured customers that it remained “well capitalized by regulatory standards,” the analyst, Prashant Bhatia of Citigroup, theorized that a rush of withdrawals might leave the bank without enough funding to operate.

It also made me wonder if those firms were exposed to the same kinds of risks.  I don’t have any statistics, but my understanding and personal experience from the dot com bubble is that during a recession there is less interest in stock market investment.  Could that mean that some of the same E*trade challenges could affect the new shops?

One Response to “E*Trade Crash a Boon for the Likes of Zecco?”

  1. tony November 14, 2007 at 11:13 pm #

    A little history lesson is in order. Etrade’s big innovation in the early 2000’s was to consolidate their brokerage and bank balance sheets so that they could take all that idle cash in customers’ brokerage accounts and use it to buy mortgage backed securities. The big benefit being that they took on a little more risk but got higher interest rates on the cash and made more money off their customers. Now it seems that the “little more risk” has turned into “a lot more risk”. However, the other brokerages have not been as aggressive as Etrade and therefore are not significantly affected by the mortgage write-down.

    It’s definitely a boon for businesses that didn’t follow E*Trade’s model. On Monday, E*Trade’s competitors’ stocks prices (like Schwab, TD Ameritrade) were up about 6.5%.

    For more discussion: http://www.zecco.com/forums/ETrade-Mortgage-Concerns-Threaten-O-17931_1.aspx

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