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Cutbacks Crack E*Trade

Shares drop after the broker sets plans to slash mortgage jobs.

E*Trade Financial

(ETFC) - Get E*TRADE Financial Corporation Report

slumped 10% late Monday after the online broker slashed its earnings guidance and became the latest company to drop out of the wholesale mortgage business.

E*Trade said in a release after the market closed that it was exiting or restructuring "noncore businesses that lack a direct or strategic connection with its retail customers."

Among other things, the company is boosting its provision for loan losses "due to charge offs expected as a result of the disturbance in the credit markets." E*Trade expects mortgage loan charge-offs of $95 million and a bad loan provision of $245 million.

The company is also exiting its wholesale mortgage operations, streamlining its direct mortgage lending business to focus on the retail franchise and restructuring its institutional trading business.

E*Trade did not say how many positions will be eliminated in the restructuring. Severance and other exit charges are expected to total $32 million, mostly in the fourth quarter, it said.

As a result of the restructuring, E*Trade expects to make between $1.05 and $1.15 a share -- down from its previous forecast of $1.53 a share to $1.67 a share.

The news comes just one month after the New York-based company said that its "financial health" was sound, in response to a selloff that started when investors worried the company was facing possible mortgage-related writedowns.

At the time, ratings agency Egan-Jones downgraded E*Trade debt to B-plus from BB-minus, saying the value of E*Trade's $46.1 billion of mortgages and loans receivable "probably needs to be marked down."

A spokeswoman said at the time of the company that "while the volatility of the mortgage industry does impact us, the financial health of the company is sound. We believe the fear reflected in the current market capitalization is unfounded and are working diligently with investors to reassure them of the franchises' strength."

The company said Monday it is anticipating securities impairments of up to $100 million in the second half of the year.

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Over the next two years, E*Trade plans to shift its balance sheet to focus on retail assets and liabilities. 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.

An E*Trade spokeswoman was not immediately available for comment. The company is set to host a conference call this evening.

The news comes as mortgage lenders ranging from




H&R Block

(HRB) - Get H&R Block Inc. Report




have been firing thousands of workers as the mortgage business has gone sour.

Shares of E*Trade fell $1.41 to $12.80 after the market closed.