E*Trade-Citadel Deal: A Major Mark To Market Event


We greeted the news of announcement yesterday that Citadel had picked up an asset backed securities portfolio from E*Trade in our usual curmudgeonly style. While investors celebrated the news by pushing E*Trade’s share price up, we noted that this probably should have the accountants at many Wall Street firms scrambling to reassess their own ABS portfolios.
It turns our we weren’t alone on this. Paul Kedrosky filed a two-part analysis of the Citadel deal yesterday, and sounded many of the same notes.
“First things first, the price on E-Trade's ABS book. We just had a major mark-to-market event, in effect,” Kedrosky wrotes. “As more than a few people have argued to me via email, if most of the industry had to mark their ABS books to 27 cents on the dollar, the U.S. banking business would be in deep, deep trouble.”
So far the reaction from Wall Street has been mostly marked by silence, prompting one veteran Wall Streeter to remark over drinks last night, “How can you tell when a Wall Street bank is lying about the condition of its credit portfolio? It’s when they aren’t making any noise at all.”
E-Trade: Citadel Investment Analysis, Part 2 [Infectious Greed]