Tuesday, January 26, 2010

E-Trade Financial Corporation (NASDAQ:ETFC): Q4 Earnings Preview 2009

E-Trade Financial Corporation (NASDAQ:ETFC) is scheduled to release its fourth-quarter financial results after the market close on Wednesday, January 27, 2009. Analysts, on average, currently expect the company to report a net loss of 4 cents a share on revenue of $240.52 million. In the year ago quarter, the company reported a net loss of 50 cents per share on negative revenue of $26.40 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. The New York-based company has lost $3.49 billion since the third quarter of 2007 from loan defaults and was forced to accept capital injections Citadel Investment Group last year. In October, the company reported a third quarter loss that widened from a year ago, on charge-offs and higher loan loss provision, however, beat analysts' estimate by a penny. The New York-based company reported a net loss for the third quarter of $832 million or $0.66 per share, compared to a loss of $50 million or $0.09 per share in the year-ago quarter. Excluding the impact of the item, the company reported a net loss of $59 million, or $0.05 per share for the third quarter of 2009. Total net revenues for the quarter decreased to $347.22 million from $517.80 million in the prior-year quarter. Analysts, on average, expected the company to report earnings of $0.06 per share on revenue of $202.49 million.
At the end of third quarter, the company had Bank Tier 1 capital ratios of 6.72% to total adjusted assets and 13.15% to risk-weighted assets. The Bank had excess risk-based capital, which is above the level regulators define as well-capitalized, of $985.4 million as of September 30, 2009. At quarter end, E*TRADE reported 4.5 million customer accounts, which included a record 2.7 million brokerage accounts. The average commission per trade increased by $0.45 during the quarter to $11.50.
There now seems to be a consensus that the company has turned the corner. However, return to profitability still remains a big challenge. Last month, E*TRADE said that total special mention delinquencies, 30 days to 89 days delinquencies, declined 3% from September 30 to November 30, while total "at risk" delinquencies, 30 days to 179 days delinquency, declined 2% for the same period. For its home equity portfolio, which represents the company's greatest exposure to loan losses, special mention delinquencies declined by 8% from September 30 to November 30, while total "at risk" delinquencies dipped 5% for the same period. However, the company reported that its total daily average revenue trades for November declined 22% from the same period in 2008 and 13% decline sequentially from October. Still, year-to-date, through November, DARTs are up 6% from the same period last year. E-Trade registered a 22% decline in daily average revenue trades for the month of October compared to the previous year. Total customer assets at the end of October were $142.90 billion, up 19.7% from 119.38 billion last year. Total accounts at the end of October rose 2.2% to 4.50 million from 4.41 million last year. Total gross new accounts, however, decreased 60.1% to 52,407 from the previous year. E*Trade lost 2,569 net accounts in October, compared to a net account growth of 57,191 last year.
In December, ETFC announced that it is restructuring its international business. It also agreed to sell its local market trading operations in Germany and the Nordic region.
The company has been the subject of takeover speculation for most of 2009. According to industry experts, E-Trade is a potential acquisition target for bigger rivals like TD Ameritrade (NASDAQ: AMTD) and Charles Schwab (NASDAQ: SCHW). Shares of the company surged early this month after the Daily Telegraph said the company is in advanced talks about a sale.
In terms of stock performance, E-Trade shares are up 49% over the past year.

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