US online brokerage E*Trade has slashed its 2007 earnings forecast by a hefty 31% after having its fingers burned by the US mortgage market crisis.
New York-based E*Trade has cut its full year earnings estimates to between $1.05 to $1.15 per share, down from a range of $1.53 to $1.67.
E*Trade's mortgage portfolio of about $30 billion mainly consists of third-party loans bought from lenders or brokers, according to a Reuters report.
Following the turmoil in the mortgage markets during August, E*Trade says it will shutter its wholesale mortgage operations and streamline its direct mortgage lending business to focus on its retail franchise. The broker says it is also restructuring its institutional sales trading business "to better align it with retail activity".
The restructuring is expected to result in charge-offs of $95 million. E*Trade says it has also set aside $245 million in loss provision for the second half of 2007. The loan loss provision for the first half of the year was around $55 million. The company has also set aside an additional $100 million to cover possible losses in its securities portfolio.
E*Trade chief executive Mitch Caplan told reporters that the firm wants to put the credit crisis behind it and put the focus solely back on core retail customers.
"Today's announcement addresses the recent shifts in the global financial markets and allows us to focus on accelerating plans to further align both our balance sheet and business operations with our core asset - the retail customer," says Caplan in a statement.
E*Trade president Jarrett Lilien told reporters that the brokerage wants at least 80% to 85% of its balance sheet to be driven by customer-related activity, compared to around 60% currently.
Despite the problems, the firm still expects to report a $500 million profit - the second-best performance in the company's history.