When the year began, NetBank (NYSE: NTBK) was trading at about $4.30 per share. Since then, the stock has rapidly deteriorated and plunged to $0.40, and the company has been shedding divisions as recently as a buyout that occurred yesterday. For investors, it's all a stark reminder of the ominous risks that come with smaller financial institutions.
As the name implies, NetBank leverages Internet technologies to cost-effectively deliver banking services. Back in the heady 1990s, the stock hit a high of more than $60 per share, split-adjusted. A Fool article from that period by Paul Larson stated: "All it took to propel the stock to the stratosphere was some positive comments by the company's CEO and an announcement of a 3-for-1 stock split."
Fast-forward to today. The world is much more sober. Internet banking has turned into a commodity and is now standard stuff at large, well-established institutions such as Citigroup (NYSE: C), Bank of America (NYSE: BAC), and Wells Fargo (NYSE: WFC). NetBank also does not have a broad platform of services to make up for the thin margins from the flat yield curve and the problems in the mortgage market.
In February, NetBank reported its preliminary unaudited 2006 results. The after-tax loss was a stunning $202 million, or $4.36 per share. The company is delinquent on its SEC filings and recently engaged Porter Keadle Moore as its new auditor. To deal with the implosion, NetBank has exited a variety of businesses, including auto lending, insurance, and RV/boat/aircraft financing.
Investors got another bombshell yesterday. EverBank Financial agreed to purchase NetBank's small-business equipment-leasing division, the NetBank brand, and $2.5 billion in deposits. It all means that NetBank will sustain a loss of $60 million to $70 million.
NetBank will also close its NetBank mortgage-origination business, a move likely to translate into a loss of $25 million to $28 million.
While it's possible for NetBank to stabilize, there's not much left to provide for a sustainable business. That won't stop daredevil traders from playing the stock, but this is definitely no place for Foolish investors.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares of companies mentioned in this article. He currently places 1,898 out of more than 29,000 ranked players in Motley Fool CAPS.
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