Reuters
E*Trade loss deeper than expected; issues warning
Tuesday July 22, 7:01 pm ET
By Jonathan Spicer
NEW YORK (Reuters) - E*Trade Financial Corp (NasdaqGS:ETFC - News) reported a wider-than-expected second-quarter loss on Tuesday, and warned it could see more losses as the economy deteriorates and more loans sour.
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E*Trade posted a net loss of $94.6 million, or 19 cents a share, in the quarter ended June 30, compared with a profit of $159.1 million, or 37 cents per share, a year earlier. The quarterly loss was its third in a row.
On average, analysts polled by Reuters Estimates expected a second-quarter loss of 14 cents a share.
Shares of the lender and online brokerage fell 13.6 percent in after-hours trading.
The company took a provision of $319.1 million for loan losses. E*Trade has been hit by losses in its mortgage business. Its loan portfolio is big compared with most of its competitors.
Although it is trying to turning itself around through measures like cost cutting and shedding assets, the weakening U.S. economy is hampering its efforts.
Earlier this year, E*Trade said it expected to turn a profit from continuing operations in 2008, but on Tuesday the company said the economy may prevent that from happening.
"The credit losses are higher than we expected," Chief Executive Donald Layton said in an interview.
Recent difficulties in the mortgage market should also affect E*Trade's $330 million of preferred equity in Freddie Mac (NYSE:FRE - News) and Fannie Mae (NYSE:FNM - News). Preferred and common shares of those two housing finance companies have plummeted this year amid concerns about their capital levels.
E*Trade sold 65 percent of the preferred shares in July at a loss, which should cut into pretax results by $83 million in the third quarter.
"Their value was on a roller coaster during the last month ... The reality is, that's the kind of high risk investment E*Trade does not need to be in," Layton said.
E*Trade said "the current economic environment may impede our expectations to return to profitability from continuing operations this year."
Revenue fell 20 percent to $532.3 million.
The loss from continuing operations was $119.4 million in the quarter, compared with a profit of $159.1 million in the same quarter of 2007.
E*Trade's total loan delinquencies increased 9 percent from 2007, while its home equity loan delinquencies grew 4 percent.
The company reported daily average revenue trades -- a measure of trading volume -- of 172,314 in the period, up 2 percent from a year ago.
E*Trade's shares fell to $3.50 in after-hours trading from the Nasdaq close of $4.05. The company's shares have dropped about 80 percent over the last year.
(Editing by Jeffrey Benkoe)
