E*Trade Steamrolled by Credit Crunch

E*Trade shares plunged 58% Monday on worries that it may not be able to survive the meltdown in the subprime mortgage market.

E*Trade announced late Friday that it will take a writedown because of losses in mortgage-backed securities. The company said it is well capitalized to withstand the losses, but a Citigroup analyst said the company could face bankruptcy if customers begin to withdraw funds.

E*Trade shares have skidded from $25.79 to $3.55 since June, an 86% plunge, as the online broker has been swept up in the subprime mortgage market meltdown that has roiled financial markets. The company has been hurt by a late entry into the mortgage market, along with high exposure to subprime borrowers and weak housing markets, according to a CNBC report.

TD Ameritrade and Schwab rose on speculation that they could benefit from E*Trade’s troubles, and other financial stocks gained on hopes that a Treasury Department-organized bailout fund can stem the freefall in the credit market.

Coming off the Nasdaq’s worst week since 2002, E*Trade was another blow for the tech sector, which lost another 1.7% Monday, and the Dow fell below 13,000 for the first time in three months.

Cognos was a bright spot, though, surging on a $5 billion buyout from IBM.

Cisco shares finally stabilized after a two-day plunge on disappointing results, but Apple, Research in Motion, Nvidia, VMware and Baidu all fell sharply.

Vasco Data Security surged nearly 15% on upgrades, and Globecomm jumped 24% on earnings and a government contract win.

The Nasdaq fell 43 to 2584, the S&P lost 14 to 1439, and the Dow fell 55 to 12,987. Volume declined to 4.17 billion shares on the NYSE, and 2.85 billion on the Nasdaq. Decliners led by a 21-10 margin on the NYSE, and 17-12 on the Nasdaq. Downside volume was 66% on the NYSE, and 72% on the Nasdaq. New highs-new lows were 21-275 on the NYSE, and 58-267 on the Nasdaq.