E*Trade Financial shares lost more than half their value on Monday after Citigroup downgraded the company's shares from 'hold' to 'sell' and indicated that there is a 15 percent chance that the firm could file for bankruptcy.
The company's stock fell 58.7 percent, or $5.04, to close at $3.55. Citigroup analyst Prashant Bhatia said this morning in a note to clients that the brokerage had changed its earnings forecasts five times in eight months, reflecting poor risk management.
E*Trade said later in a message to clients on its web site that the company could afford to absorb an immediate write-down in excess of $1 billion and still remain well capitalized.
Last Friday, E*Trade reported in a securities filing that the value of its mortgage-backed securities holdings had fallen significantly and could lead to bigger than expected write-downs in its fourth fiscal quarter.
Citigroup analyst Prashant Bhatia said that the company could lose market savvy customers with more than the federally protected $100,000 in assets to rivals such as Charles Schwab and TD Ameritrade.