E*Trade Financial ( ETFC) on late Thursday posted a fourth-quarter loss that was more than $1 a share greater than what Wall Street expected.

The troubled New York-based online broker said it had a loss of $1.7 billion, or $3.98 a share, as it continues a restructuring plan intended to bring it back to profitability and strengthen its credit-hammered balance sheet. That compares with a profit of $177 million, or 40 cents a share a year earlier.

The company produced a net revenue loss of $2 billion, compared with $628 million in the year-earlier quarter. Analysts expected a loss of approximately $2.90 a share for the quarter, according to Thomson Financial.

"Our 2007 earnings performance was clearly disappointing, with the overall results masking a very strong year of growth for the retail franchise," said acting CEO Jarrett Lilien. "The earnings loss reflects a damaged balance sheet that we are now correcting. The primary objectives of the turnaround plan are to eliminate lingering customer concerns about the risk associated with the bank's balance sheet and the company's capital ratios, and to reduce expenses to free up capital that will fund growth initiatives. Combined, these efforts will unleash the growth potential of the franchise."

Lilien noted E*Trade in the past two months has "taken significant steps to strengthen the franchise," including reducing balance sheet-related risk and leverage, exiting non-performing businesses and nailing down a $2.5 billion cash infusion from private equity group Citadel Investments.

Shares closed flat at $3.48 on Thursday and were up 17% in recent after-hours trading.

The company took a $2.2 billion pretax loss on the $800 million sale of its asset-backed securities portfolio to Citadel during the fourth quarter. It recognized asset losses and impairments of $2.45 billion, which includes the sale of the troublesome ABS portfolio, it said. The company's provision for bad loans totaled $640 million for all of 2007.

The company also outlined additional initiatives as part of its restructuring plan to bring the company back to profitability and strengthen its capital position.

Among other things, E*Trade is strengthening its capital and liquidity through a combination of asset sales and potential capital market transactions; removing "undue risk" from its balance sheet; reining in expenses by implementing $360 million worth of cost cuts.

"The plan addresses the company's financial challenges and in doing so allows us to get past the concerns ... and restore confidence," by reducing risk in the balance sheet, leverage at the parent company and expenses to fund investments, Lilien said on a conference call.

Lilien said the company expects $1 billion to $1.5 billion of cumulative losses in its $11 billion home equity portfolio over the next three years. The company plans to take a provision between $400 million and $600 million in 2008.

E*Trade's troubles in the back half of 2007 led the company to post a net loss of $1.4 billion, or $3.40 a share, for all of 2007. That's compared with net income of $629 million, or $1.44 a share in 2006.

E*Trade plans to "deliver significantly improved results in 2008 and anticipates returning the company to a full-year profit in 2008," it said.

As the credit crunch worsened last year, E*Trade embarked on a restructuring to refocus the company on retail banking and trading. Part of E*Trade's problem was that the firm expanded beyond its traditional roots by piling risky asset-backed securities onto its balance sheet.

But in late November, after E*Trade's stock fell below the $5 range, Citadel stepped in to provide some much-needed liquidity to the ailing firm. E*Trade was forced to take writedowns on its asset-backed securities portfolio, primarily within collateralized debt obligations, or CDOs, and second-lien securities. The combination of the writedowns and troubles in E*Trade's mortgage portfolio as a result of the declining housing environment sent investors running for the hills.

Earlier this month, the online broker said it sold $3 billion worth of mortgage-related securities and municipal bonds with a realized loss of "less than $5 million" on the sale.

Also, the company's home equity loan portfolio continued to run off as expected. Home equity loans were less than $12 billion at the end of the year, the company said.

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