Investment brokerage firm E*TRADE Financial Corp. (ETFC) Tuesday reported a net loss for the second quarter, compared to a profit in the year-ago period on a 25% reduction in revenues from commissions as well as a huge provision for bad loans.
Among others in the industry, Charles Schwab Corp. (SCHW) last week reported 1% rise in its second-quarter profit, helped by new client accounts. The company's net revenues rose 9% from the same period in 2007.
New York-based E*TRADE reported a second quarter net loss of $94.6 million or $0.19 per share, compared to net income of $159.1 million, or $0.37 per share reported a year ago. In the prior quarter, net loss was $91.2 million or $0.20 per share.
Results for the second quarter of 2008 include a $24.1 million non-cash tax benefit in discontinued operations related to the expected sale of the company's Canadian operations. The company said last week that it has signed a definitive agreement with Scotiabank (BNS.TO, BNS) to sell E*TRADE Canada for $442 million in cash. The transaction is expected to close in the third quarter of 2008.
On average, 13 analysts polled by First Call/Thomson Financial expected a loss of $0.14 per share for the second quarter.
Total revenue decreased to $532.34 million from $668.86 million in the previous year. The Street estimated second quarter revenues of $332.50 million.
Net operating interest income dropped 16% to $342.76 million. Revenue from commissions declined 25% to $122.24 million, while fees and service charges dropped 15% to $50.96 million. Principal transactions for the quarter declined 33% to $18.39 million. The company reported a loss of $15.71 million on loans and securities, compared to a gain of $636 thousand last year.
Total delinquencies increased by 9% during the quarter, representing the slowest increase in four quarters. Home equity loan delinquencies increased by 4% during the quarter, down from an increase of 8% in the prior quarter. The company set aside $319.1 million during the second quarter to cover bad loans in investment portfolios, ten times the $30 million set aside a year ago.
Provision for loan losses increased by $85 million from last year, driven primarily by an increase in home equity-related charge-offs. Total other expense widened to $77.08 million.
Donald Layton, Chairman and Chief Executive Officer of the company observed, "While losses in our credit portfolio are somewhat higher than expected, they are still manageable in accordance with our previously-announced Turnaround Plan and our capital base remains strong, as may be seen by the continuing substantial level of excess risk based capital in our bank subsidiary."
The company noted that in accordance with its Turnaround Plan, previously announced non-core asset sales are expected to generate over $700 million in net proceeds, including $660 million expected to close in the third quarter, which surpasses management's previously stated goal of $500 million.
The company opened 232,000 gross new accounts and produced 30,000 net new accounts. Net new customer asset flows were $900 million.
Cash and equivalents at the end of June 30, 2008 was $2.819 billion, while it was $1.778 billion at the end of December 31, 2007. Margin receivables for the periods were $7.370 billion and $7.179 billion, respectively.
Year-to-date, the company reported a loss of $185.75 million or $0.39 per share, in comparison with net income of $328.54 million or $0.75 per share in the corresponding period last year. For the first half of the year, total net revenue dropped to $1.061 billion from $1.311 billion.
For the third quarter, the company expects to reflect a pre-tax loss of $83 million associated with its investment in preferred equity of mortgage lenders Fannie Mae (FNE) and Freddie Mac (FRE).
ETFC closed Tuesday's regular trade at $4.05, up 40 cents or 10.96% from the previous close, on 32.19 million shares. The stock dropped 59 cents or 14.57% in the extended trade. For the past year, the stock trended in the range of $2.08-$22.80.
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