NPR: Online Trading Firm's Stock Value Drops by Half

Online Trading Firm's Stock Value Drops by Half

E*Trade has had better days. Shares in the online stock-trading firm lost more than half their value today following a warning from a Citigroup analyst about a higher "probability of a run on the bank."

TheStreet.com reports that analyst Prashant Bhatia downgraded the stock to a "sell" rating after E*Trade announced Friday that it expected to take additional hits from the subprime mortgage crisis. The firm also said that the Securities and Exchange Commission had launched an informal inquiry into the firm's loans and securities portfolios.

Now, I know next to nothing about the stock market and securities portfolios, but I do know that everyone pulling their money out of a bank is not a good thing. (Anybody who has ever seen It's a Wonderful Life understands that.) So I wondered what would happen if you did have some money in an E*Trade account, like a margin-selling account that day traders like to use, when the company went kaput. Would you lose it all because the company is online rather than a bricks-and-mortar entity?

Well, the message from Karen Petrou, a managing partner at Federal Financial Analytics in Washington, D.C., is that you can relax. A bit. E*Trade, she told me, is an insured depository, which makes it just like a bank (even if it doesn't have ATMs). That means it's protected by the Federal Deposit Insurance Corp. to the tune of $100,000 per customer. (The FDIC doesn't protect stocks, mutual funds and money market accounts, but those wouldn't be affected by what happens to E*Trade as a company.)

Then again, TheStreet reports that 50 percent of E*Trade accounts, about $15 billion, are in excess of $100,000. So maybe only half of its customers can relax. And I'm guessing that there might not be any E*Trade commercials during the Super Bowl this year.

6:04 PM ET | 11-12-2007 | permalink

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