Questionable Mortgage Portfolio Value Hindering E-Trade Sale

November 26, 2007 No Comments »

Shares of E-Trade, which jumped 25 percent Friday on news that the embattled brokerage was close to a sale, slumped today on news that potential suitors were haggling over the price of its depreciating mortgage portfolio.

E-Trade’s mortgage portfolio, which was valued at $29.3 billion at the end of the third quarter, is apparently being scrutinized for not being valued on a mark-to-market basis to address current market conditions (it’s full of home equity loans).

The brokerage, which also owns $12.4 billion in mortgage-backed securities tied to home equity loans, has posted $197 million in pretax writedowns for its securities portfolio and has set aside $237.8 million in loan-loss provisions.

Any sale is still subject to oversight from the Office of Thrift Supervision, whose stance at this time is still unknown.

In mid-September, E-Trade exited the wholesale mortgage business after sustaining significant losses as a result of deteriorating credit markets and subprime lending woes.

TD Ameritrade and Charles Schwab, who failed to comment on the current dealings, are believed to be the frontrunners in the bid to takeover the ailing brokerage.

E-Trade, which has seen its shares fall over 80 percent since early summer, was down 40 cents, or 7.50%, to $4.93 in midday trading on Wall St.

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