Struggling discount brokerage E*Trade has posted a fourth quarter net loss of $1.7 billion after it took a $2.28 billion pre-tax hit on the sale of its asset-based securities portfolio to hedge fund manager Citadel in November.
The massive Q4 loss compares with net income of $176.9 million a year earlier. The quarterly loss also included a $101.2 million goodwill charge.
E*Trade got badly burned by the US mortgage crisis last year and received a $2.55 billion cash infusion from Citadel in November. The deal included the sale of its $3 billion asset backed securities (ASB) portfolio for about $800 million.
For the year ending 31 December 2007, E*trade posted a net loss of $1.4 billion, compared to net income of $629 million in 2006.
But despite the very bad news, shares in New York-based E*Trade rallied 10% to $3.84 in evening trading on Thursday after the broker disclosed details of a turnaround plan which it says could see the firm move back into profitability in 2008.
The plan includes disposing of non-core assets and cutting costs by $360 million during the year. The broker says it will also re-invest $85 million in "growth initiatives", including marketing, service and product innovation.
Says E*Trade CEO, R Jarrett Lilien: "The earnings loss reflects a damaged balance sheet that we are now correcting. The primary objectives of the turnaround plan are to eliminate lingering customer concerns about the risk associated with the bank's balance sheet and the company's capital ratios, and to reduce expenses to free up capital that will fund growth initiatives."