E*Trade Woes Renew Buyout Chatter

Still, E*Trade reported a third-quarter loss of $58 million, or 14 cents a share, last month. It ended up setting aside an extra $187 million for loans gone bad and taking $197 million in securities writedowns. E*Trade said that it expected to take the writedowns both this year and next year.

Aside from a sale, other options for E*Trade include a sale of certain bank assets or some sort of financial investment or capital infusion, much like Bank of America's(BAC Quote) $2 billion investment into troubled mortgage lender Countrywide through the purchase of its preferred stock in August, analysts say.

Matt Snowling, an analyst at Friedman, Billings, Ramsey, speculates that the company is exploring the sale of its home equity or second lien portfolio in order to "remove the overhang" on the stock, he says. He also downgraded the stock to market perform from outperform in a note.

"There are two options," says Snowling. "One is always the obvious -- to sell. TD Ameritrade would have to be looking. The ability to pick up these accounts that are highly profitable at a fire sale -- they have to be looking."

But what is a more likely outcome is that the company will look to sell its home equity portfolio at a loss, which would require them "to raise a little bit of capital," according to Snowling.

He suggests that among other potential buyers, private equity firms could be interested in buying the distressed portfolio and acquiring a stake in the brokerage firm at the same time.