E*Trade Swings to Loss, Misses Estimates

The online brokerage, however, was trading up in after-hours action.
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E*Trade Financial

(ETFC) - Get Report

on late Thursday posted a larger-than-expected first-quarter loss as the online broker struggles to pare down its ailing business amid the lingering credit and mortgage crisis.

In the first three months of the year, the New York-based firm recorded a loss $91.2 million, or 20 cents a share, compared to a profit of $169.4 million, or 39 cents a share, a year earlier. Revenue was cut in half to $316 million. Analysts on average expected E*Trade to post a loss of 10 cents a share, according to Thomson Financial.

During the quarter, E*Trade took a provision expense of $234 million for loan losses. Losses on loans and securities included $27 million of impairments to triple-A rated and double-A rated collateralized mortgage obligations, it said.

The company also said it is undergoing additional restructuring to reduce annual compensation-related expenses by 10% or roughly $50 million a year. A company spokeswoman said the expense reduction will be a combination of streamlined employee positions, exiting lines of business and natural attrition, among other things.

E*Trade boosted its excess capital for its bank subsidiary to $695 million, a 60% increase from the prior quarter. It also improved its Tier 1 capital and risk-based capital levels for the bank to 6.8% and 12.4%, respectively, it said.

The company said average daily customer trades rose 12% to 190,724. It had opened 305,000 gross new customer accounts, up 10% from the fourth quarter. Still the company's total accounts at the end of the quarter rose just 5% from a year earlier.

"While we entered January with some disruption to our customer base due to last year's challenges, we exited the quarter with increased stability and the beginnings of a return to growth," Chairman and CEO Don Layton said in a statement. "The growth in new customer relationships, even during a difficult environment, speaks to the continued strength and appeal of the E*Trade brand."

"We are clearly facing a cyclical downturn in the economy and markets, and because we will be a simpler company after the disposition of certain non-core assets, we need to reduce our overall expense base," he said.

E*Trade's home equity portfolio -- a source of concern for investors -- "is performing broadly in line with expectations," Layton added. "We are therefore affirming our three-year cumulative loss forecast of $1 billion to $1.5 billion."

E*Trade made several changes to its board and management during the first quarter. Layton, who had been chairman of the board, also became the company's CEO in March.

Layton, a former

JPMorgan Chase

(JPM) - Get Report

executive, took the reins from ex-Chairman and CEO Mitch Caplan, who left E*Trade when Citadel Investments stepped in to rescue the company. President Jarrett Lilien had temporarily filled the position of acting-CEO.

Citadel stepped in after the brokerage was forced to take writedowns on its asset-backed securities portfolio, primarily within collateralized debt obligations, or CDOs, and second-lien securities. Citadel ended up taking a 20% stake in the company, as well as purchasing the $3 billion asset-backed securities portfolio for just $800 million.

Perhaps the most high-profile change made last month was the addition of former

Citigroup

(C) - Get Report

COO Robert Druskin to the firm's board of directors. Druskin, who

retired from Citi in December

, will chair its newly formed finance and oversight risk committee.

Earlier in the day, brokerage rival

TD Ameritrade

(AMTD) - Get Report

reported

solid profit growth

of 32% to $187 million, or 31 cents a share. Earnings were in line with analysts expectations, according to Thomson Financial. Similarly,

Charles Schwab

(SCHW) - Get Report

also reported

positive results

on Wednesday.

Shares of E*Trade spiked 8.7% on Thursday. In recent after-hours action, the stock was rising 9.4% to $3.96.