eTrade 2008 Annual Report Download - page 120

The Company does not believe that any individual unrealized loss in the available-for-sale portfolio as of
December 31, 2008 represents an other-than-temporary impairment. The majority of the unrealized losses on
mortgage-backed securities are attributable to changes in interest rates and a re-pricing of risk in the market.
Substantially all mortgage-backed securities backed by U.S. Government sponsored and federal agencies are
“AAA” rated. Municipal bonds and corporate bonds are evaluated by reviewing the credit-worthiness of the
issuer and general market conditions. The Company has the intent and ability to hold the securities in an
unrealized loss position at December 31, 2008 until the market value recovers or the securities mature.
Within the securities portfolio, the asset-backed securities portfolio, which was sold in the fourth quarter of
2007, represented the highest concentration of credit risk. The Company recorded other-than-temporary
impairment charges for asset-backed securities of $168.7 million and $1.5 million for years ended December 31,
2007 and 2006, respectively. Subsequent to the sale of that portfolio, the highest concentration of remaining
credit risk, while considerably lower than the credit risk inherent in asset-backed securities, is the CMO portfolio.
While the majority of this portfolio is AAA-rated, the Company concluded during 2008 that approximately
$181.2 million of these securities had a probable risk of future loss as a result of the deterioration in the expected
credit performance of the underlying loans in the securities. These securities were written down to their estimated
fair market value by recording $95.0 million impairment during the year ended December 31, 2008.
Our intent to hold securities in an unrealized loss position at December 31, 2008 until the market value
recovers or the securities mature was based on the facts and circumstances that existed as of that date. The
Emergency Economic Stabilization Act of 2008 (the “Act”) was signed into law on October 3, 2008. This Act
grants the Treasury authority to purchase debt securities from financial institutions under the TARP Capital
Purchase Program. The administration in place at the Treasury on December 31, 2008 had not utilized this
particular authority granted to them in this Act. Therefore, the Company’s ability and intent to hold securities in
an unrealized loss position at December 31, 2008 until the market value recovers or the securities mature was
based on this fact.
Subsequent to December 31, 2008, a new administration was put in place at the Treasury. On February 10,
2009, this new administration provided a high level outline of its plans to help resolve the credit crisis. As part of
this plan, they announced their intentions to create the “Public-Private Investment Fund”. They stated that the
purpose of this fund will be to purchase both loans and securities from financial institutions allowing them to
cleanse their balance sheets of what are often referred to as “legacy” assets. The Company does not yet know
enough about the details of this program to determine if it would be of interest to the Company. Therefore the
Company cannot make an assessment of whether the Treasury’s plans under the Act will impact the Company’s
intent with respect to these securities and its loans in future periods.
The Company elected the fair value option for its preferred stock under SFAS No. 159 as of January 1,
2008. Subsequent to the adoption, preferred stock was classified as trading securities. As of December 31, 2008,
the Company no longer held preferred stock securities as all positions were sold during the year ended
December 31, 2008.
The detailed components of the gain (loss) on loans and securities, net and gain (loss) on sales of
investments, net line items on the consolidated statement of income (loss) are shown below.
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