As of mid-February, however, E-Trade's stock hadn't rallied. But the company's fortunes have gotten a boost from an influx of new customers who want more control over their investments, and it can now offer more security for deposit customers thanks to the FDIC's new $250,000 deposit insurance cap.
"E-Trade itself is a cash machine," Nolop says. The company is now focused on wooing even more customers to its core business, and investing its own cash as wisely as possible. As for a return to profitability, the company offers no prediction. Indeed, its loan losses are still larger than the profit generated from the basic brokerage business, although its provision for loan losses has decreased markedly of late. "We're still going to have significant loan losses through 2010," says Nolop. "We are past the crisis, but we're not past the problem."
Vincent Ryan is senior editor for capital markets, Marie Leone is senior editor for accounting, and David M. Katz is New York bureau chief at CFO.
NexBank: Timing Is Everything
By the third quarter of 2008, the subprime-mortgage debacle had precipitated one of the most devastating financial crises in U.S. history, as a host of questionable if not insane business practices took a collective toll on every sector of the economy.
What's a community bank to do? Why, get into the residential-mortgage market, of course. "Everybody we talked to, including our board, questioned the decision," says Michael Rossi, CFO of Dallas-based NexBank. "But we saw it as an opportunity because we knew the mortgage business would come back."
Rossi knew a thing or two about the mortgage business — and about timing. He parlayed the profits from a restaurant chain he co-founded into a mortgage company, and left that business in 2005 as he "started to see the writing on the wall." He reported for duty at NexBank three days later.
Today, NexBank originates about 300 mortgages a month, which Rossi admits is "not a huge part of our total assets, because the mortgages that we originate are sold to large aggregators that securitize them." And, in a sense, real estate still poses a headache for NexBank, primarily due to regulators' calls for more-stringent limits on its commercial real estate exposure. Fortunately, NexBank derives a significant income stream from its fee-based agency services business, a line of business that involves little or no credit risk.
As for a true return to normalcy, Rossi says it is just a matter of time. "Lenders and borrowers will just have to get sick of feeling bad," he says. "Once that happens, you'll start to see new deals." — Marie Leone
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