My ETrade Nightmare

I view myself as a risk-taker. I have always been a risk-taker in my career and in relationships. Yet, last Monday, I was abruptly confronted with a risk that I couldn't possibly take.

I always thought that bank runs were things that you read about in distant lands or in history books.  They just aren't supposed to happen in 2007 in the US, and they certainly aren't supposed to happen to people who are educated and prudent about their money (which I believe that I am).  Therefore, I am still trying to figure out how I became part of one last week.

It all started many years ago, I believe.  I had an account with Brown & Company, one of the first online brokerages, and their service was spectacular.  When Brown & Company was purchased by JP Morgan, I grew more and more comfortable with it for all of my banking needs.  I gradually migrated my money over the Brown & Company to the point where I had my entire net worth (a couple of million dollars) invested there.  Since I trade regularly, the discount brokerage rates were excellent and I felt no reason to be concerned that my entire net worth was invested in street name through a company owned by one of the largest US banks.  I held all of my securities there in street name.

At some point, about a year and half ago if my recollection is correct, Brown & Company was purchased by ETrade.  While I was initially concerned about this acquisition and the increased risk and particularly ETrade's lack of significant insurance above SIPC limits, I believed based on my research that ETrade was a growing company and that my holdings would be secure. 

As ETrade's stock started to decline over the last several weeks, my concerns became hightened but I didn't have time to take any action.  Then, all of the sudden on Monday, I awoke to the realization that the company was trading down 60%, and that an analyst at Citibank had hit it with the bankruptcy word.

I know that the question of whether people who live in glass houses should throw stones has been addressed elsewhere on this site in relation to this downgrade and Merrill analyst on Countrywide and I don't want to get into it here.  I also don't want to get into what ETrade owns or doesn't own.  I believe that it is clear however that they took on much too much risk in relation to SIV and MBS securities at the banking level than could possibly have been appropriate.

I just didn't have time to analyze these things as I suddenly became aware that all of my stocks (and virtually all of my wealth) was held in street name in a bank that may imminently fail.

I just wanted out of everything over SIPC limits (basically over $500,000 with no more than $100,000 in cash).  I have very minor concerns about SIPC, a private fund to protect depositors in brokerage accounts.  My bigger concern was the fact that ETrade was estimated to have over $15 billion in deposits over this amount covered only by a $600 million excess insurance policy.

Contacting ETrade at first was not difficult, but became gradually more difficult over the course of the week as they tried to stop this bank run.  Their communication with depositors was very poor, and did little to lessen my concerns. While ETrade has always been an excellent customer service organization with excellent tools, suddenly they put up every roadblock possible to transferring by wire or by DTC transfer my assets out. 

After five days, I finally got most of my assets out. 

As I recover from this experience, I am very sour about the entire thing.   I hope ETrade survives and hope to be able to move large parts of my assets back to them when they have more realistic insurance cover.   While I understand that they dragged their feet in order to stop or slow a real live bank run, I am angry that my life was so disrupted for a week by this entire experience. 

Nothing is going to get me my lost week and lost sleep back; I just hope that other can learn from this experience, especially if we start to see more and more banks and brokerages approaching failure.

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  • fran

    November 19, 2007

    What was the deal with Brown & Company? Was it passed around like a cheap escort?

    Also, I am sure the delay in helping you out has nothing to do with bad customer service. If csr attention is demanded by at a much higher percentage than usual, you should understand why you weren't served immediately.

  • Rich to Poor

    November 19, 2007

    No empathy here. Your nightmare is over. I am living mine from putting virtually everything in ETFC and other bank stocks. These guys bet the house with my money and now I can look forward to a Thanksgiving with no turkey, and a XMas with no wife, without my kids and probably without a roof over my head. I am glad that the stock is back at 5 1/2, but it needs to double, double again and then go up a few points for me to be anywhere near whole.

  • Brian

    November 19, 2007

    Where did you move your money and is it safer there?

    The federal reserve will not let etrade fail. If it were to let etrade fail all hell would break lose. So etrade will be fine or the only safe place for your money is under the mattress. Banks were bailed in the 80s and they will be bailed again.

  • SafeAtLast

    November 19, 2007

    Wow, I have an amazingly similar story. Opened with DJL Direct, which after 2-3 acquisitions, became E*Trade. Good news is I was able to get through to E*Trade service reps reasonably quickly. "Scary" part was they asked me to fax in a notarized confirmation that I wanted my money wired out. Monday was a bank holiday, so was impossible to find a notary. Did so on Tuesday. The wire was confirmed, but it was another day before the destination bank confirmed the order - the destination bank rep thought this was unusual.

    Nevertheless, I am mostly out - all that's left at E*Trade is my IRA which is well under SIPC limits.

    Sad to see E*Trade in this state. I really liked their trading and account management platform. I had all my accounts consolidated there.

  • DanS

    November 19, 2007

    Wow! I had exactly the same experience. Lost almost 10 days, made more than 30 calls, and did absolutely everything before I could unstick my monies. They were really playing a game, trying to keep the funds, but I still hope they survive. I agree, their platform is fantastic.

  • Tony

    November 20, 2007

    I believe Etrade's wiring or transferring money out has always taken a few days.....

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