UPDATE 3-E*Trade loss narrows sharply as recovery continues

* Q4 loss of 4 cents per share matches Street view

* Shares climb 1.8 percent

* No new CEO, but a preferred candidate in search
(Adds chairman, analyst comments, byline; updates shares)

By Jonathan Spicer

NEW YORK, Jan 27 (BestGrowthStock) – E*Trade Financial Corp
(ETFC.O: ) posted its 10th straight quarterly loss, but it was a
small fraction of the loss in the year-earlier quarter as the
online broker made headway on its crippling bad loans.

With its exposure to mortgage-market losses declining,
E*Trade said on Wednesday it was now positioned for
“sustainable, profitable growth.” The company, hard hit by the
mortgage meltdown, has been careful not to forecast when it
will return to profitability.

Interim Chief Executive Robert Druskin said on a conference
call the company has a preferred CEO candidate in mind, and
intended to announce a name in the near future.

E*Trade shares rose 1.8 percent in after-hours trading
following the results, which matched market expectations.
Loan-loss provisions and net charge-offs declined from the
preceding quarter, helping the results.

The company, increasingly seen as a takeover target,
reported a fourth-quarter loss of $67.1 million, or 4 cents per
share, down from a loss of $275.6 million, or 50 cents per
share, a year earlier.

Revenue rose 7.6 percent to $523.4 million.

The earnings were in line with what analysts expected on
average, according to Thomson Reuters I/B/E/S. E*Trade’s $231
million of revenue, excluding the provisions, was shy of the
$245.8 million expected by analysts.

Daily average trading volume in the quarter fell 20 percent
from last year, hurt by an earlier-than-usual holiday period
trading slowdown as individual investors locked in profits from
last year’s sharp stock market rise.

Druskin said he expects 2010 customer trading levels
similar to that in 2009, which was a record year even though
trading volume dropped in the final quarter.

“They’re going to be affected, like the other online
brokers, by weak trading volumes,” said Jason Ren,
Chicago-based equity analyst at Morningstar. “But it does seem
like they are turning the corner slowly but surely” based on
the loan loss provisions, he added.

Larger rivals TD Ameritrade Holding Corp (AMTD.O: ) and
Charles Schwab Corp (SCHW.O: ) last week reported steep quarterly
profit drops that missed Wall Street expectations.
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FORAY INTO REAL ESTATE

E*Trade is still suffering from a foray into the real
estate market. Its banking unit ran up big mortgage-related
losses in the last few years, overwhelming a healthy trading
business.

The company’s shares have fallen more than 90 percent since
2007 and slipped below $1 early last year, when the possibility
of bankruptcy loomed.

Under regulatory pressure, E*Trade has aggressively raised
capital with the backing of major stakeholder Citadel
Investment Group and is starting to recover.

The company’s shares were up 3 cents at $1.68 in
after-hours trading. The stock closed up 1.8 percent in regular
trading ahead of the results announcement.

Loans in E*Trade’s home equity portfolio that are 30 to 89
days delinquent — the company’s greatest exposure to loan
losses — fell 9 percent from the preceding quarter.

The company set aside $292 million for loan losses and
logged $324 million in charge-offs, both lower than in the
preceding quarter.

E*Trade last month named Druskin, a director, as chairman
and interim CEO, replacing Donald Layton, who stepped down as
CEO at the end of 2009. Druskin told analysts and media on the
call the new CEO would ideally serve for more than two years.
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Looking ahead, E*Trade said it expects to divest its
money-losing UK and Nordic local trading operations in the
first half of this year, and record about $15 million of
related charges. The move was expected after the company
announced an international restructuring last month.

Management said it expects operating expenses to decline
modestly this year.

Investment

(Editing by Ted Kerr and Steve Orlofsky)

UPDATE 3-E*Trade loss narrows sharply as recovery continues