Updated to include comments from E*Trade's CEO.
NEW YORK (
reported earnings of $8 million, or 3 cents a share, for the September-ending quarter, in line with analysts' estimates.
E*Trade reported a loss of $855 million, or $6.74 a share, for the comparable three months in 2009, and a profit of $35 million, or 12 cents a share, in the prior quarter.
The third quarter of 2009 included a non-cash charge of $968 million, before taxes, for debt extinguishment in relation to the online broker's $1.74 billion debt exchange last summer. The exchange had an after-tax impact of approximately $773 million, or $6.09 per share. Excluding the impact of the exchange, E*Trade would have reported a loss of $82 million, or 65 cents a share.
E*Trade CEO Steven Freiberg
E*Trade's revenue, while above analysts' estimates of $317 million, still came in lower both sequentially and year-over-year. The company reported total net revenue of $489 million for the third quarter, compared with $534 million in the prior quarter and $575 million in the year ago period.
"For the last several years we've been challenged by the idiosyncratic issues with E*Trade specific of legacy loan portfolio. That's becoming less of an issue," Freiberg said in an interview with
on Wednesday. "Our focus will be more on the offensive than play defense."
The phase is important to the future of the brokerage firm. "We see our future essentially as a growth company," not as one that needs to constantly mind its legacy assets, he says.
E*Trade continues to have positive trends in its troubled legacy loan portfolio as both delinquencies and provisioning declines. Expenses also remain in line, Freiberg notes, even with the firm allotting more money toward sales and marketing to compete with rivals
, for example.
Still, challenges remain in its bread-and-butter brokerage business as the industry overall experienced weaker trading by the retail investor in the third quarter. Freiberg attributed the lower trading to the May 6 'Flash Crash.'
E*Trade reported daily average revenue trades, or DARTs, of 127,000 during the quarter, down 26% sequentially and 30% compared to the year-earlier period.
The firm said commissions, fees and service charges, principal transactions, and other revenue in the third quarter totaled $151 million, down 22% sequentially, reflecting "the sequential decrease in trading activity and a slight decline in the average commission per trade, from $11.05 to $11.03."
At quarter end, E*Trade recorded 4.2 million customer accounts, which included a record 2.7 million brokerage accounts. Net new brokerage accounts were 7,000 during the quarter vs. 18,000 in the prior quarter.
"It takes a while for the investor to basically get a sense that it's safe to go back into the water," Freiberg says.
That being said, preliminary activity in the fourth quarter seems to have improved, he adds. "We're actually starting to see some degree of resiliency of the retail investor
in the first half of October. We feel more encouraged then the quarter the preceding it."
Freiberg also notes that there is an "unprecedented" amount of cash sitting on the sidelines at near-historic low rates of return.
E*Trade's customer assets totaled $159 billion at September 30.
Even though E*Trade is looking to wind down legacy mortgage assets, the firm does not service the loans and does not expect the latest foreclosure challenges experienced by the banks to have a "material direct or indirect impact," Freiberg says. "We do not service loans and importantly, we are fully indemnified by our servicers."
Charles Schwab's third quarter net income fell 38% year-over-year to $138 million, it said last week. TD Ameritrade reports earnings results on October 26.
E*Trade shares rose roughly 1.5% for the day to $14.71.
--Written by Laurie Kulikowski in New York.
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