Citi's Analyst's Bold Downgrade of E*Trade

On November 11, Citi's analyst Prashant Bhatia downgraded the online brokerage and banking firm from hold to sell due to "higher probability of a run on the bank." As another victim of the turmoil in mortage-related securities market, he thinks that "depending on the extent of asset write-downs in 4Q, E*Trade may fall below well-capitalized." The stock plunged 59% on that trading day, although it has recovered partially today on takeover rumors. This is an example of how influential a research analyst can be in moving a stock. Nonetheless, what impresses me is his blunt opinion on management. He votes "no confidence in the CEO, in the President & COO, and in the members of the Board of Directors. Management lowered its earnings guidance for the 5th time in 8 months and now management believes that it is no longer beneficial to provide earnings expectations for 2007." Very few analysts have the courage to issue such criticism to the management of the companies they cover.