It’s been a tough day for them. E*Trade shares are down 57% today, following the announcement Friday that they had significant exposure in mortgage backed securities. (I covered it here)

One analyst says that it is 65% likely that they will go belly up.

E*Trade is claiming that it will remain solvent with “an immediate write-down over $1 billion”. Given that has a “$3 billion portfolio of asset-backed securities”, it would seem unlikely, except for the fact that no one actually knows what they would sell for. There is no functioning market for these vehicles.

Sandler O’Neil analyst Richard Repetto said investors should no longer buy E-Trade stock, but said he doesn’t believe the firm is facing the worst-case scenario others are forecasting. He added the firm isn’t likely to have to take the more than $1 billion in losses needed to hurt its “well capitalized” standing, unless credit issues spread to the portfolio of prime asset backed securities or home equity loan performance “materially worsens.”

And there is the rub. Everyone believes that the credit issues will spread, and that home equity loan performance will tank.

If you have more than $100K in E*trade, I would suggest that you get out. Under that amount, you are federally insured.