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Saturday, December 01, 2007

Impact of E*Trade Portfolio Sale

by Calculated Risk on 12/01/2007 02:35:00 PM

On Thursday, Brian provided a spreadsheet of the assets included in the E*Trade portfolio sale. He estimated the deal was for 27 cents on the dollar, and we were definitely surprised by the implied size of the haircuts for the prime first lien portion of the portfolio.

Here is more from Reuters: E*Trade firesale seen hurting Wall St portfolios (hat tip Alan)

UPDATE: I've received several emails pointing out that Bhatia is probably wrong.
Analysts are suggesting the sale valued the portfolio ranging from 11 cents to 27 cents on the dollar:

Citigroup investment bank analyst Prashant Bhatia said E*Trade actually received 11 cents on the dollar for its portfolio, if you factor in that the brokerage received $800 million in cash minus 85 million shares it issued. He said that implies Citadel's received stock compensation worth about $450 million, leaving E*Trade with only $350 million for its $3.1 billion portfolio.
And everyone was surprised by the price considering the assets in the portfolio:
Goldman Sachs analysts said they were surprised by the size of the discount on the E*Trade portfolio because 73 percent of the assets were backed by prime mortgages, or loans to people with solid credit.
It is worth emphasizing that a large portion of the assets were backed by prime - not subprime - mortgages. And many of the prime loans were first liens with decent average FICO scores (average 725) and LTV (71%).