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E*Trade Slashes Guidance

Shares fall 5% as it follows in rival Ameritrade's footsteps.

Updated from 5:43 p.m.


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fell 4% late Wednesday after the online broker joined its chief rival in slashing full-year earnings guidance.

The New York-based online broker made $169 million, or 39 cents a share, for the quarter ended March 31, up from the year-ago $143 million, or 33 cents a share. Revenue rose to $645 million from $598 million a year earlier.

Analysts surveyed by Thomson Financial were looking for a 38-cent profit on sales of $673 million.

"Although the broad based markets have been strong, the recent volatility in the macroeconomic environment has affected retail customer behavior and engagement levels," E*Trade said. "As a result, we are reducing our 2007 earnings estimate to better reflect the muted retail environment we are now experiencing as compared to our expectations at the end of 2006."

The news comes just a day after


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made a similar move, though Omaha, Neb.-based Ameritrade said it believed a February market selloff had scared individual investors out of the market.

E*Trade said daily average trades fell 6% from a year ago, including an 11% drop in the U.S., while average per-trade commissions dropped 2%.

The company said it expects to make $1.55 to $1.75 a share for the year, in line with the $1.70 Thomson Financial estimate. E*Trade also said it would buy back $250 million of stock.

CEO Mitchell Caplan said in his introductory remarks during the company's earnings call that E*Trade's exposure to risky residential borrower is not significant. The company's subprime exposure is $50 million, representing less than 0.2% of its roughly $29 billion loan portfolio.

He adds that the company's so-called Alt-A business consists exclusively of loans that lack documentation, and said borrowers had sufficient funds to support borrowings, with loan-to-value ratios of just 69%.

E*Trade also said its board approved a $250 million share-repurchase plan. Caplan said during the earnings call that asset sales, such as the sale of the company's trading platform in Australia, will fund the effort.

"It is pretty clear where we can buy back stock as a result of these sales.

It allows us to have an opportunity to purchase back our shares if there are value opportunities," he said.

The shares were down 90 cents to $21.23 in late trading.