Writedowns Wrack E*Trade

E*Trade, which also has a retail banking arm, is the latest company hit hard by a mortgage and housing downturn. The broker had warned in September that it was restructuring to eliminate its wholesale mortgage business and streamlining its direct mortgage lending business to focus on the retail franchise, among other things.

Over the next two years, E*Trade plans to shift its balance sheet to focus on retail assets and liabilities, it said at the time. It will run off its home equity, consumer loans and securities portfolio balances and plans to replace these assets as they mature or are paid down with margin debt and prime first lien mortgages from retail customers.

"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 Mitch Caplan, CEO of E*Trade. "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."

E*Trade shares have been hit hard this year amid the credit crunch, in spite of talk that the broker might merge with rival TD Ameritrade AMTD. Earlier this summer, New York-based E*Trade said that its "financial health" was sound, in response to a selloff of shares that began when investors worried the company was facing possible mortgage-related writedowns.

Wednesday's setbacks come just days after rival Schwab SCHW posted solid quarterly gains.

E*Trade shares fell 39 cents to $12.08 after the market closed.