E Trade between woes and worries

Fortune Magazine– Don Layton was standing out in the chilly cold when he got an impolite instigation into life at the top of E*Trade. He was expecting a quiet day but suddenly the calls began to come. Worried investors, company mangers were telling him that there were rumors about pulling of assets by the customers and it was happening second time in two months when E*Trade was down .All wanted to know about the decision he was going to take. His first intuition was to pay no attention to them as he’d just seen E*Trade’s client statistics for December, and knew they weren’t great. New business was not coming in and the old customers were staying put. He thought if he unnoticed the rumors, they would crackle out on them self. The new chairman Don Layton had been living a relaxed life of a retired banker and never personally seen what just a small trouble could do to a company that for months had reeled on the verge of financial fall down.

On that January day, E*Trade’s already stricken shares banged again, falling 20%, to $2.25 and made Layton bewildered. “I was not aware of how rumors in a vacuum could move fast and move the stock so much,” states the Wall Street veteran.

E*Trade is still on the verge of destruction. The crash of the credit markets has charged the company just about everything: billions of dollars pull out of customers, its CEO, its COO, and most horrible of all, its reputation. It’s been a sudden U-turn of fortune for Manhattan-based E*Trade, the country’s third-largest online bank and brokerage firm (after Charles Schwab (SCHW, Fortune 500) and TD Ameritrade (AMTD).

Last November after an analyst’s report E*Trade’s customers pull out $2.5 billion in assets in one day. Since October, E*Trade has observed $56 billion in customer assets disperse. It also has $28 billion in property-related loans on its balance sheet and $11 billion in property-backed securities.

The CNBC picked up the report and in a twinkling of an eye the street was buzzing that E* trade going bankrupt. Investors were discarding the stock but investors were not the problem the real problem was with customers. They were worried about their deposits. Everyone was calling them or mailing them to make their accounts clear.
The company contacted more than 40 potential investors for their cash requirement including some contestants. Citadel, the Chicago-based hedge fund, quickly emerged as the front-runner. The fund, which they caught up in the credit crisis, had been eyeing E*Trade for months, the cash addition provided E*Trade a chance to fight and it also cooled down the customers. E*Trade answered with a new marketing campaign. It offered customers special offers, like free trading days, to stay involved. It also started a series of ads that directly attended to the company’s plight, guaranteed to clean its balance sheet of striking securities such as CDOs, Alt-A, or second-lien ABS one reads.

Slowly these strategies began to win customers back. For the month of December, the number of customer accounts held steady. In January the company increased net new retail accounts by 16,000. In February, E*Trade generated 43,000 new accounts.

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