E*Trade's Customers Are Not Happy!
While E*Trade might be the stock market's next "five-bagger," to get there the online broker may need to do more than just clean up its balance sheet.
Friday, I reported here at BNET Finance how E*Trade's so-far unsuccessful application for $800 million of government TARP aid might actually help the company in the long-run:
Arguably, not accepting TARP funds (albeit through not being allowed to) may mean that the broker didn't suffer the unintended consequences of doing so, such as disincentivizing key employees by introducing ludicrous long-term performance-linked salary structures. In May, E*Trade shareholders voted down a proposal by the company to tie executive bonuses to long-term performance goals.After that post was republished by finance blog Seeking Alpha however, one commenter pointed out his less-than-rosy personal experience with E*Trade. In a nutshell, the commenter opened an account with E*Trade in August 2007, and wired funds into the brokerage account on the same day.... E*Trade may indeed serve as an example for many economists of how banks ought to have been forced to act once they discovered their woes: selling down nonessential assets, paying a premium for liquidity, and squeezing operating costs.
At the same time as the stock market cratered (creating a huge opportunity for gains in short-selling shares), the commenter reports being "slapped with a 12-day restriction" on his funds. At that point, the issue became for him "[a] return OF capital rather than return ON capital." Numerous other account holders were affected:
What they did to us that week was reprehensible, egregious, despicable, and the only positive thing that came out from the experience was that I developed a first hand knowledge of just how terrible things were in the financial markets, that people were in such financial trouble that they were grabbing cash anyway they could get it to paint their books so their counter parties didn't find out the truth, that there were some horrifying things lurking under the surface of Wall Street, and that alone made me incredibly suspicious and cynical of anything coming out of the Street, and so I became very disbelieving and short term trading oriented - probably the only reason I survived the next 18 months worth of market collapse.This commenter is not the only one to report such account restrictions for little or overly-draconian reasons. Over at personal finance blog Interesting Money, another new E*Trade customer by the handle of Mr. B reports in a series of posts his frustrations with E*Trade's account restrictions. While Mr. B was initially relaxed about the restriction, after more than a week the broker's lackadaisical service began to wear him down.
What's startling is the number of commenters on Mr. B's posts who report the same experiences. For example, one writes:
I am getting tired of triing to get the restrictions off my account. I have callled numerous times, only for the phone people to say I couldn't have access. What to do? Now i can't even get through on the phone. I thought that was my money. What's really going on? I think I did everything to get the restrictions off anyway. I want the money to buy a farm and why shouldn'nt i be able to get it if I have it? It's my money, it's my money, it's my money, darn itNote how in particular, most account holders with these experiences are new customers. In a time when E*Trade desperately needs to increase revenue in order to compensate for its above-average cost of debt, losing enough new customers could really hamper the broker's ability to get ahead.
E*Trade ought to bear in mind too how suspicious in general people are right now of the safety of financial institutions. In the case of another sudden market downturn, if the same events as described here transpired, that could very well create a "run" on E*Trade's "bank."
In the financial malaise, customer service experiences with financial institutions have gone all but forgotten as banks desperately acted to clean up their balance sheets. But these experiences are a good lesson of the types of "real-world" operations management banks must now embrace to get ahead and stay off government funding.
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