(Adds CEO, CFO, analyst comments, expenses)
By Jed Horowitz
NEW YORK, Jan 24 (Reuters) – E*Trade Financial Corp
, which last week named a new chief executive to help
shed bad loans and return it to its online brokerage roots,
reported a fourth-quarter 2012 loss on costs related to
refinancing its debt.
The New York-based company reported a net loss of $186
million, or 65 cents a share, for the fourth quarter. Its shares
fell more than 4 percent in after-hours trading.
E*Trade was expected to lose 54 cents a share, according to
the consensus estimate of 16 analysts surveyed by Thomson
Reuters I/B/E/S.
In the 2012 third quarter, E*Trade had a net loss of $29
million, or 10 cents a share. Investors are closely monitoring
E*Trade’s quarter-to-quarter results to evaluate progress in
shedding bad loans, building capital and improving brokerage
revenue.
The company, which has lost hundreds of millions of dollars
on its bank unit’s bad mortgage loans since late 2007, had a net
loss of $6 million, or 2 cents a share, in the fourth quarter of
2011. For all of 2012, it lost $112.6 million, compared with a
net profit of $156.7 million in 2011.
E*Trade retired $1.3 billion of high-rate debt in the fourth
quarter, an action that cost $257 million pretax, or about 59
cents a share, it said on Thursday.
Revenue in the fourth quarter fell to $468 million, down 4.5
percent from the third quarter and down 1 percent from the
year-earlier quarter on weak trading by clients. Expenses fell
1.3 percent sequentially and 6.2 percent from a year earlier, to
$285.4 million.
The company said it made progress in shedding bad assets to
strengthen its capital position.
Its balance sheet contracted by $3 billion in the quarter.
Money set aside to cover future bad loans fell by 47 percent
from the third quarter to $74.4 million. Its modification of
mortgage loans fell to its lowest level in several quarters and
is expected to continue trending down, E*Trade Chief Financial
Officer Matthew Audette said on the conference call.
E*Trade last week appointed Paul Idzik, a former banker at
Barclays Plc and consultant at Booz Allen Hamilton, as
its new chief executive.
“It’s a great business model bouncing along in an
unfavorable investment environment,” Idzik said on a conference
call with investors after the market closed on Thursday.
Asked by Raymond James analyst Patrick O’Shaugnessy if he
has a steep learning curve to climb since he has never worked at
an online broker, Idzik said he ran an electronic corporate
brokerage business at Barclays and oversaw the British bank’s
“branch network of red-blooded retail customers.”
“The other thing is we have great team here,” Idzik said.
“It’s not a one-man band.”
Idzik, 51, is E*Trade’s fifth chief executive officer since
2009.
Without referencing E*Trade’s credit problems, he said that
the brokerage business is poised for growth when the economy
revives and investor confidence returns. “We’re well-positioned
but we’re not there yet. Retail investor confidence is low and
so are volumes.”
The company said it will not ask regulators if its bank can
send money to the parent company until at least yearend–a first
step toward its ability to possibly pay a dividend to
shareholders. “We have to continue to mitigate and decrease
credit risk on the balance sheet,” Chief Financial Officer
Matthew Audette said on the call. “We need to implement cost
reductions. We need to do all those things.”
Customers in its core brokerage business continue to shun
trading. The debate over the fiscal cliff and uncertainty over
the U.S. presidential elections caused revenue-producing trades
to fall 9 percent in the fourth quarter of 2012 from a year
earlier, Audette said. Thus far in January, however, trades are
up about 17 percent from December 2012.
Clients also added $2.3 billion of net new brokerage assets
in the quarter, echoing a trend also seen at rival brokerage
companies.
TD Ameritrade Holding Corp gathered a record $15.6
billion in new client assets in the last three months of the
year, up from about $10 billion in the year-earlier quarter.
Charles Schwab Corp brought in $44 billon of net
new assets in its last quarter, including $22.6 billion of net
inflows in December alone.
TD Ameritrade CEO Fred Tomczyk said it is unlikely that the
high pace of asset-gathering will continue throughout the year.
Wealthy people at the end of last year likely accumulated
lots of cash from selling businesses, property and investments
in anticipation of higher U.S. tax rates in 2013 and deposited
it with brokers, Richard Repetto, an analyst at Sandler O’Neill
& Partners, said in an interview earlier this week.
Shares of E*Trade, which have ranged between $7.08 and
$11.50 over the past year, on Thursday closed 0.3 percent lower
at $10.27. They fell about 4.5 percent in after-hours trading on
Thursday to $9.81.
(Editing by Leslie Adler, Matthew Lewis and Carol Bishopric)
