U.S. online brokerage E-Trade Financial posted a third-quarter loss Wednesday on higher loan-loss provision and write-downs in the value of securities holdings, and lowered its full-year forecast for the second time in a month.
E-Trade shares lost 41 cents, or 3.29 percent, at $12.06 in after-hours trade Wednesday
Net quarterly loss was $58 million, or 14 cents per share, compared with a net profit of $153 million, or 35 cents per share, a year earlier.
The latest quarter's results include a 30-cent per share charge related to the write-down of E-Trade's asset-backed securities.
Analysts were expecting the brokerage to post a profit of 10 cents per share, according to the average forecast of analysts as compiled by Reuters Estimates.
Last month, E-Trade warned it had been severely hit by the mortgage market crisis and said 2007 earnings would be hurt by increased loan-loss provisions and potential declines in the value of some securities.
It now expects earnings of 75 cents to 90 cents per share for 2007, compared with $1.05 to $1.15 forecast on Sept. 17.
The new earnings forecast includes a 10-cent per share "cushion" for loan loss provisions because credit markets continue to be fluid, said E-Trade President and Chief Operating Officer Jarrett Lilien.
Net revenue fell 45 percent to $321 million from the year-ago period due to the increased loan loss provision and securities write-downs, the company said in a statement.
Analysts were expecting the brokerage to earn $506.4 million in revenue for the third quarter, according to Reuters Estimates.
E-Trade said last month it was expecting about $200 million in total impairment in the value of its securities related to CDOs and mortgages between the remainder of 2007 and 2008.
E-Trade: The CFO Speaks
E-Trade wrote down $197 million, or most of the anticipated securities impairment charges, in the third quarter, Lilien said in an interview.
"As we've been reevaluating our portfolio, we've decided not to hold the riskier securities on our balance sheet," he said.
It raised provisions for loan losses to $187 million in the quarter due to high delinquencies and net charge-offs, up from $30 million in the second quarter.
E-Trade's loan portfolio of about $40 billion contains mostly third-party loans bought from lenders or buyers.
It said earlier it would exit the wholesale mortgage business and restructure its loan mix by allowing home equity loans and second-lien mortgages to bleed off.
The brokerage is now focusing on making loans to retail customers and purchasing first-lien mortgages to bring its balance sheet back in order.
Lilien said "retail-sizing" E-Trade's balance sheet could take between four and six quarters.
"We'll accomplish that by keeping our heads down and knocking off a little each quarter," he said.
During the third quarter, retail client assets grew 18 percent to $218 billion year-over-year.
Lilien said the brokerage will focus with renewed zest on its core retail franchise to drive future growth.
He said E-Trade's fundamentals are still strong and the company did not need to sell its brokerage operations to rival TD Ameritrade Holding, as one analyst suggested.
"A sale is now not a luxury but a necessity," wrote Fox-Pitt, Kelton analyst David Trone in a research note recently.
A deal, which has been rumored in the media for months, is "now more likely than ever...now [that] key barriers have been dissipated," Trone wrote.
He said E-Trade's stock was likely to "languish around current levels for some time," given the company plans to keep its balance sheet flat for the next year as it changes the composition.
E-Trade's shares have dropped about 44 percent this year on investor concerns about the size and quality of its mortgage portfolio.
The shares closed Wednesday's session about 2 percent, or 23 cents, down at $12.47 on Nasdaq.