E-Trade posts 1Q profit, shrinks loan portfolio

AP News
Posted: Apr 20, 2011 6:11 PM
E-Trade posts 1Q profit, shrinks loan portfolio

Online discount broker E-Trade Financial Corp. on Wednesday posted a first-quarter profit that beat Wall Street estimates as it set aside less money to cover bad loans.

The company, which also offers banking services and mortgages, said it earned $45 million, or 16 cents per share, in the three months ended March 31. That compares with a loss of $47.8 million, or 25 cents per share, in the year-ago period.

Analysts on average expected a profit of 12 cents per share, according to FactSet.

The company said it set aside $116 million in provisions from loan losses for the quarter, which is less than half the $268 million it set aside a year ago. Total net revenue was flat at $537 million.

E-Trade, based in New York, has been working to recover from credit losses linked to bad loans during the financial crisis. The company said it shrank its loan portfolio by $900 million in the quarter, leaving the portfolio at $15.2 billion. E-Trade has said it plans to continue shrinking the portfolio by an average of $800 million a quarter.

CEO Steve Freiberg noted that the company's overall balance sheet has not been shrinking, however, as it continues adding customer assets.

In the latest quarter, E-trade recorded 51,000 net new brokerage accounts, compared with 28,000 in the prior quarter and just 2,000 a year ago. Net new brokerage assets were $3.9 billion, up from $2.2 billion a year ago. Daily average revenue trades rose 14 percent to 177,000.

Freiberg noted that customer retention also improved, with attrition at less than 10 percent in the quarter. That's compared with the company's traditional attrition rate of 15 percent a year.

"I wouldn't say that was a proud tradition," Freiberg said.

But he noted that the company made progress with adjustments to its pricing strategy last year and a continued focus on improving service. The company is also looking to broaden its relationship with higher net worth customers.

In the latest quarter, commissions, fees and service charges, principal transactions and other revenue totaled $201 million, compared with $196 million a year ago.

The company has also been working to control costs; total operating expenses rose slightly to $298 million, from $295 million a year ago. That's even as advertising and marketing costs were stepped up to $44.4 million, from $38.1 million a year ago.

Freiberg was hired about a year ago to replace interim CEO Robert Druskin, who had taken over after Donald Layton left the top spot. Layton, a former JPMorgan Chase & Co. executive, had been hired in March 2008 to help extricate E-Trade from its steep investment losses.

Shares of E-Trade were up 54 cents, or about 3 percent, at $16.46 in after-hours electronic trading. The stock closed up 18 cents at $15.92 during the regular session.