Thursday, October 22, 2009

E-Trade Financial Corp. (NASDAQ:ETFC): Third Quarter Earnings Preview 2009

E-Trade Financial Corporation (NASDAQ:ETFC) will release its third-quarter financial results after the market close on Tuesday, October 27, 2009. Analysts, on average, currently expect the company to report a net loss of 9 cents a share on revenue of $202.49 million. In the year ago quarter, the company reported s net loss of 9 cents per share on revenue of $377.73 million.

E*Trade is a leading online brokerage firm, which also offers retail banking services, such as checking and savings accounts and CD accounts.

E-Trade has been hit hard during the recession and credit crisis as its mortgage business suffered a major blow due to a severe slump in housing sector. In July, the company reported that its second quarter loss widened to $143.24 million or $0.22 per share from $94.56 million or $0.19 per share, in year-ago quarter. Loss from continuing operations for the quarter was $143.24 million or $0.22 per share, compared to $119.44 million or $0.24 per share in the year-earlier quarter. Analysts, on average, expected a loss of $0.31 per share for the quarter. Quarterly results included a provision for loan losses totaling $404.53 million for the quarter, up fro $319.12 million kept apart in the corresponding quarter last year. The Bank had excess risk-based capital, which is above the level regulators define as well-capitalized, of $916 million as of June 30, 2009. Net operating interest income was $339.59 million, compared to $342.76 million in the comparable quarter last year. Total non-interest income increased to $281.32 million from $189.57 million in the prior-year quarter.

Total net charge-offs surged to $386.39 million in the second from $53 million in the prior quarter. At quarter end, E*TRADE reported a record 4.5 million customer accounts, which included a record 2.7 million brokerage accounts.

However, the worst seems to be over for the company and there are improving trends in the firm's business. Last month, company reported strong client trading during August, prompting many analyst upgrades. The New-York based online brokerage firm reported a 37.4% increase in total daily average revenue trades for the month of August. At the end of August, the company recorded brokerage accounts of more than 2.73 million, including gross new brokerage accounts of 31.32 thousand and net new brokerage accounts of 11.32 thousand during the month. The company noted that, at the end of the month, total brokerage accounts were more than 4.52 million.

Customer security holdings for the month declined 17.2% to $107.31 billion from $129.67 billion last year. Brokerage related cash for the month increased by $982 million compared with last year. However, this was offset by a $380 million reduction in bank related customer cash and deposits, as the company continued to execute on its balance sheet reduction strategy. Total customer assets for the month declined 13% to $142.32 billion from the comparable period.

Also in September, the company provided an update concerning delinquencies in its loan portfolio. Special mention delinquencies, which are 30 to 89 days delinquent, for its home equity portfolio, remained flat from June 30 to August 31. Home equity delinquencies, that are 30 to 179 days delinquent, declined 7% from June 30 to August 31. Total special mention delinquencies for the company's loan portfolio, which includes one- to four-family, home equity and consumer and other loans, declined by 4% quarter to date, as of August 31, 2009, , suggesting stabilization in its home-equity-loan business. Further, the company reported quarter-to-date total net revenues of $413 million. Commission, fees and other revenues for the period was $151 million. Operating expense for the period totaled to $188 million.

For the third quarter, the company expects provision for loan losses of $300 million to $375 million and net charge-offs of $350 million to $375 million.

Recent capital actions have also allayed concerns about the financial health of the company. In late August, the company completed a $1.74 billion debt exchange to bolster its capital position as investments related to real estate soured. Last month, Office of Thrift Supervision asked the company to pump another $100 million into its bank to bolster the unit's capital. Subsequently, E-Trade unveiled plans to raise $150 million selling new common stock.

Citadel Investment Group, which twice injected capital into the struggling online brokerage, has both converted part of its huge debt holdings in E*Trade Financial Corp. into stock and cut its stake in the firm to avoid crossing a key regulatory boundary.

According to few industry experts, E-Trade is also a potential acquisition target for bigger rivals like TD Ameritrade (NASDAQ: AMTD) and Charles Schwab (NASDAQ: SCHW).

In terms of stock performance, E-Trade shares are up 20% since the beginning of the year. Shares of the company gained 3 cents or 1.23% to $1.64.

Disclosure: Author doesn’t own any of the stocks discussed here.
Related Posts with Thumbnails

Wikinvest Wire