E*Trade Financial Corporation (NASDAQ: ETFC) today announced results for its third quarter ended September 30, 2007, reporting a net loss of $58 million, or $0.14 per share, compared to net income of $153 million, or $0.35 per share a year ago.
"While we are extremely pleased with the continued growth trends we are generating throughout the retail business, we are clearly disappointed with the overall Company performance as a result of the severe volatility in the credit markets," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "We are working diligently to execute our strategic plan to manage through the credit challenges as quickly as possible and focus the Company on the opportunity and strength of our retail franchise."
The Company's Retail segment generated record revenue and income in the quarter of $474 million and $224 million, respectively. These results were driven by the continued growth and engagement of retail customers. Retail client assets rose 18 percent year-over-year to a record $218 billion, including a 25 percent increase in total customer cash and deposits. Daily Average Revenue Trades ("DARTs") rose 44 percent over the year-ago period to a third-quarter record of 194,000.
The net loss in the quarter was primarily due to higher provision for loan losses and securities write downs in the Company's Institutional segment. Provision for loan losses in the quarter increased to $187 million principally due to higher loan delinquencies and net charge-offs. This increase was consistent with previous expectations. Securities write downs in the quarter totaled $197 million, pre-tax. This amount was previously forecasted to occur in the second half of 2007 and throughout 2008, and was realized instead in the third quarter rather than in future periods. Total net revenue for the third quarter declined 45 percent year-over-year to $321 million as a result of the higher provision and securities write downs.
Based primarily on the realization of securities write downs in the third quarter, the Company has revised its 2007 guidance. As a baseline, the Company is now forecasting 2007 earnings of $0.85 to $0.90 per share. This range includes an assumption of $80 million in provision for loan losses and no additional securities write downs. However, the Company believes that in the current environment it is extremely difficult to accurately forecast credit-related items. As a result, management believes it is prudent to include another $0.10 in its forecast for the possibility of further credit deterioration - in some combination of securities write downs and provision - for new 2007 earnings guidance of $0.75 to $0.90 per share.
Other selected recent and third quarter highlights:
- Delivered strong year-over-year Retail growth trends
- Total accounts increased 6 percent
- Total client assets increased 18 percent, with cash up 25 percent
- Total DARTs increased 44 percent
- International DARTs increased 76 percent
- Margin debt increased 19 percent
- Passed the 1,000,000 target segment account threshold - 28 percent of retail accounts
- Produced record trade levels for options at 16.7 percent of U.S. DART volumes
- Delivered record international DARTs of 33,000
- Launched retail operations in Singapore
- Repurchased $53 million of common stock
Note that the Company has updated its Supplemental Portfolio Disclosure to include data as of September 30, 2007. Additional credit-related details, key performance metrics and historical monthly metrics, including data from January 2003 to September 2007 have also been disclosed.
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