E*Trade Financial ( ETFC) shares were surging 25% Wednesday, as new data showed delinquencies in the online broker's troubled home equity portfolio could be stabilizing. The New York-based company said that home equity loans in early delinquency -- those that are delinquent by 30 to 90 days -- dropped 8% in February as compared to a month earlier. Early delinquencies in the $9.8 billion portfolio dropped a cumulative rate of 16% since December, it said. E*Trade shares recently were up 23 cents to $1.14 as investors speculated that an improvement in the early delinquencies could mean that the housing bottom is nearing, some observers say. But home equity loans that are late by 90 to 179 days -- those the company identifies as "at-risk" loans -- rose 8% from a month earlier. And those that are more than 180 days late rose 9% month over month, E*Trade said. Total delinquent home equity loans represented 7.6% of the portfolio at the end of February, roughly flat from earlier periods. Still another troubling figure is in E*Trade's $12.7 billion residential mortgage portfolio. The company said that loans that are delinquent by more than 90 days rose 22% vs. January. E*Trade's total loan portfolio, which includes residential mortgages, home equity loans and other consumer loans is roughly $25 billion. Total early delinquencies fell by 4% month-to-month and by 7% cumulatively since December, it said. The company, which forayed into mortgage lending and securities business during the housing boom earlier this decade, has been one of the worst-hit companies since the beginning of the credit crisis. Among other things, the company has been hobbled by delinquencies and defaults in its home equity loan portfolio -- most of which were second-lien securities not backed by a first-lien mortgage at E*Trade.
The company said last year that it would exit its retail mortgage lending business, but just last week it launched an initiative to jumpstart mortgage originations by partnering with third-party mortgage outsourcer, PHH ( PHH). E*Trade said given the troubled economic environment, it would start releasing loan delinquency data at the midpoint of each quarter either as part of an investor presentation or with monthly trading activity reports. The company said that daily average revenue trades in February slipped 1.3% from the prior month, but rose 9.7% from the year-earlier period to 181,744. E*Trade opened a total of 62,361 gross new retail accounts in the month of February, down 17% from January and 36% fewer vs. a year earlier. New retail accounts totaled 10,684 in the month of February. E*Trade's net new assets for the month totaled $1.2 billion, flat compared to January's asset inflows and the year-earlier figures. The company's retail customer assets total $102.7 billion, a decrease of 38% from the prior year. "Net-net, today's report was okay, with
month over month retail activity levels in-line with our expectations and strong organic growth," Deutsche Bank analysts Matt Fisher and Mike Mayo wrote in a note. "In addition, while delinquencies have risen, the pace of new delinquencies appears to be slowing and the loan portfolio continues to roll off." But UBS analyst Mike Carrier says he is cautious of the decline in early delinquencies given that two months is not sufficient time to prove the trend. With daily trading declining, interest rates near zero, continued uncertainty in the market and home equity related credit issues continuing to weigh on the company's capital levels, "E*Trade is likely to see continued pressure in the near term," he writes in a note. E*Trade in November applied for an $800 million investment from the Treasury Department's Troubled Asset Relief Program, but still has not received approval for the funding. TD Ameritrade ( AMTD) said daily average trading activity of 306,000 trades was flat compared to January but up 12% from a year earlier. Charles Schwab ( SCHW) said that average client daily trades rose 7% to 349,900 month over month and 21% from a year earlier.