OTS: E*Trade Bank Must Quickly Raise Capital

E*Trade Financial Corporation (NASDAQ: ETFC), the parent company of E*Trade Bank and E*Trade Brokerage, was notified by The Office of Thrift Supervision to “quickly” raise new capital for its bank and reduce the leverage of the holding company after it posted a 7th straight quarterly loss. (Interactive Investor) E*Trade reported earnings on April 28th and shares fell a whopping 25% as disclosed the directive from OTS.

What does this mean for consumers with accounts at E*Trade Bank? They are FDIC insured so your deposits are secure up to $250,000, so I wouldn’t worry too much. Their failure would be like any other bank and chances are your deposits will be available within a day or two (they usually fail banks on a Friday and reopen on Monday). If all of your savings are in E*Trade, you might want to withdraw a little bit just so you have it on hand in case you need it those few days the bank will be inaccessible. Better safe than sorry.

What does this mean for shareholders? The stock dropped 25% for a reason, failure of the bank would be very bad for the holding company. Should the holding company go bankrupt, shareholders would almost certainly be wiped out.

E*Trade faced this sort of pressure before, we’ll see if they can get themselves out.