In November 2007, Prashant Bhatia, a Citi Investment Research Analyst, wrote that E*Trade had a 15% chance of bankruptcy due to the effects of the decline in the subprime market. E*Trade’s shareholders clearly took this statement to heart as the company’s share price declined 59% in one day. Just as interesting however, is the question of whether E*Trade’s online depositors shared those fears.

While not as well known as its brokerage business, E*Trade also has a significant deposits business with nearly $30 billion in consumer deposits. At Compete, we utilized our panel of two million users to investigate what impact, if any, this analyst report had on the behavior of E*Trade’s online high-yield savings (HYSA) shoppers. If E*Trade’s online consumers reacted in a similar manner as its shareholders, we would expect to see a comparable drop in new submitted online account applications after the report was released.

Approximately one month before the Citi analyst report was released, E*Trade reduced its rate on high-yield savings from 5.05% to 4.70% APY. However, shortly after the report E*Trade increased its rate back at 5.05% APY. This rate increase may have been an attempt by E-Trade to stem consumers’ fears about its financial condition. Did this rate increase successfully offset the negative news about E*Trade from the Citi analyst report?

*Competitive set includes high yield savings products of E*Trade, HSBC Direct, ING Direct, Emigrant Direct, CapitalOne, & Countrywide

The chart above illustrates E*Trade’s weekly share of submitted online high-yield savings applications among its key competitors. The vertical dashed lines correspond to the specific events mentioned above: the decreasing of E*Trade’s high-yield rate, the publishing of the analyst report, and E*Trade moving its rate back up again. When E*Trade lowered its rate on October 12th, it experienced an immediate drop in account openings and a loss of 6 share points from 19% to 13%. E*Trade’s share of applications remained flat at 12% for the next four weeks. On the week of November 11th, when the analyst report about bankruptcy was published, E*Trade’s share of online submitted high-yield savings applications instantly dropped another 4 points. Shortly thereafter, E*Trade raised its interest rate back to competitive levels and within a week, its share of online high-yield savings applications increased 10 points!!

Decreasing its high-yield interest rate as well as the release of the analyst report were both followed by losses in E*Trade’s application share. However, once E*Trade returned its rate to a level in line with key competitors, its share of applications went higher than ever, despite any fears of bankruptcy! This just goes to show that, like investors, consumers will take a risk for the right return. And apparently that there is still plenty of faith in the FDIC to bail us out if things go wrong.

Analyze more domains: + +

Done reading? subscribe: To get an automatic feed of all future posts subscribe here, or to receive them via email enter your email address in the box in the right column.

Link to This Post:     

Posted under: Finance - Real Estate - Stocks | Trackback Link | Permalink | Share - Save - E-mail