E TRADE Financial Corp (ETFC)

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UPDATE 1-RESEARCH ALERT-Citigroup cuts target on E*Trade

(Recasts, adds details, share movement) Oct 28 (Reuters) - Citigroup lowered its price target on E*Trade Financial Corp (ETFC.O: Quote, Profile, Research, Stock Buzz), saying it sees remaining home equity portfolio losses for the U.S. discount brokerage in excess of its existing reserve and a higher probability of a dilutive capital raise.

The brokerage, which cut its price target to $1.70 from $2.25 on the stock, said it sees an embedded remaining loss within E*Trade's home equity portfolio of between $2 billion and $2.5 billion, or $1.5 billion in excess of its existing reserve.

The brokerage said it evaluated losses related to E*Trade's home equity portfolio after its peer National City Corp (NCC.N: Quote, Profile, Research, Stock Buzz) disclosed a significantly higher loss estimate on the portfolio.

Even after exhausting its current reserve, E*Trade would need to raise close to $1.5 billion, the brokerage said, adding that it estimates every $100 million of equity capital raised by the company to dilute share count by 12 percent to 15 percent.

E*Trade's management expects home equity portfolio losses to be in the $1.2 billion range until 2010, the brokerage noted.

Citigroup reiterated its "sell" rating on E*Trade stock, which fell 4 percent to $1.65 in afternoon trade on Nasdaq. (Reporting by Amiteshwar Singh in Bangalore; Editing by Deepak Kannan)