The Wall Street Journal-20080206-E-Trade Signal- We-ll Get Righted

Return to: The_Wall_Street_Journal-20080206

E*Trade Signal: We'll Get Righted

Full Text (411  words)

The purchase of $2 million of E*Trade Financial Corp. shares by company insiders reflects their confidence in the online broker's potential to turn itself around, a company spokeswoman said.

Ten E*Trade insiders, including its chairman and its acting chief executive, bought 474,761 shares of the company last week, according to filings with the Securities and Exchange Commission. For seven of the insiders, these were their first reported open-market purchases.

News of the purchases sent E*Trade's stock up 10% to $4.62 Jan. 30. E*Trade shares, which closed yesterday at $4.49, are down roughly 80% over the last 12 months amid mortgage-related write-downs.

The insiders purchased the stock Jan. 29, several days after E*Trade unveiled a restructuring plan it hopes will put it back in the black by year end.

The purchases show that the insiders "have confidence in the turnaround plan we laid out and the future of the franchise," E*Trade spokeswoman Pam Erickson said.

Chairman Donald Layton made the largest purchase: 245,800 shares for an average price of $4.07 each, or $1 million total. Acting Chief Executive Jarrett R. Lilien bought 7,376 shares for the same average price.

The company's turnaround plan calls for asset sales and potential capital-raising to strengthen liquidity. The company wants to cut costs by $360 million and to spend $85 million on growth initiatives, such as marketing and product innovation. E*Trade's goal is to end 2008 with close to $1 billion in excess capital.

BMO Capital Markets Corp. analyst Michael Vinciquerra said in a research note that he expects the turnaround plan will return the company to profitability in 2009. He has a target price of $8 on the stock, which assumes the company can stabilize its client base and move into the black.

He rates the stock as "market perform." He said, "With some help from the credit cycle, the stock would be a steal at current levels."

Ben Silverman, a research director at InsiderScore.com, which tracks and analyzes insider transactions, said he had expected insiders to purchase stock because of the company's stated optimism about its turnaround plan. "In certain cases, they are putting their money where their mouth is," Mr. Silverman said.

The last stock purchase by an E*Trade insider was in August, when the company's stock fluctuated between $13.55 and $17.50. Mr. Lilien bought 3,000 shares for an average price of $14.99 each on Aug. 6. Separately, director Stephen Willard acquired 15,000 company shares through the exercise of options on Aug. 17.