UPDATE 2-E*Trade posts wider-than-expected 4th-quarter loss

Thu Jan 24, 2013 8:07pm EST

(Adds CEO, CFO, analyst comments, expenses)

By Jed Horowitz

NEW YORK Jan 24 (Reuters) - E*Trade Financial Corp , which last week named a new chief executive to help shed bad loans and return it to its online brokerage roots, reported a fourth-quarter 2012 loss on costs related to refinancing its debt.

The New York-based company reported a net loss of $186 million, or 65 cents a share, for the fourth quarter. Its shares fell more than 4 percent in after-hours trading.

E*Trade was expected to lose 54 cents a share, according to the consensus estimate of 16 analysts surveyed by Thomson Reuters I/B/E/S.

In the 2012 third quarter, E*Trade had a net loss of $29 million, or 10 cents a share. Investors are closely monitoring E*Trade's quarter-to-quarter results to evaluate progress in shedding bad loans, building capital and improving brokerage revenue.

The company, which has lost hundreds of millions of dollars on its bank unit's bad mortgage loans since late 2007, had a net loss of $6 million, or 2 cents a share, in the fourth quarter of 2011. For all of 2012, it lost $112.6 million, compared with a net profit of $156.7 million in 2011.

E*Trade retired $1.3 billion of high-rate debt in the fourth quarter, an action that cost $257 million pretax, or about 59 cents a share, it said on Thursday.

Revenue in the fourth quarter fell to $468 million, down 4.5 percent from the third quarter and down 1 percent from the year-earlier quarter on weak trading by clients. Expenses fell 1.3 percent sequentially and 6.2 percent from a year earlier, to $285.4 million.

The company said it made progress in shedding bad assets to strengthen its capital position.

Its balance sheet contracted by $3 billion in the quarter. Money set aside to cover future bad loans fell by 47 percent from the third quarter to $74.4 million. Its modification of mortgage loans fell to its lowest level in several quarters and is expected to continue trending down, E*Trade Chief Financial Officer Matthew Audette said on the conference call.

E*Trade last week appointed Paul Idzik, a former banker at Barclays Plc and consultant at Booz Allen Hamilton, as its new chief executive.

"It's a great business model bouncing along in an unfavorable investment environment," Idzik said on a conference call with investors after the market closed on Thursday.

Asked by Raymond James analyst Patrick O'Shaugnessy if he has a steep learning curve to climb since he has never worked at an online broker, Idzik said he ran an electronic corporate brokerage business at Barclays and oversaw the British bank's "branch network of red-blooded retail customers."

"The other thing is we have great team here," Idzik said. "It's not a one-man band."

Idzik, 51, is E*Trade's fifth chief executive officer since 2009.

Without referencing E*Trade's credit problems, he said that the brokerage business is poised for growth when the economy revives and investor confidence returns. "We're well-positioned but we're not there yet. Retail investor confidence is low and so are volumes."

The company said it will not ask regulators if its bank can send money to the parent company until at least yearend--a first step toward its ability to possibly pay a dividend to shareholders. "We have to continue to mitigate and decrease credit risk on the balance sheet," Chief Financial Officer Matthew Audette said on the call. "We need to implement cost reductions. We need to do all those things."

Customers in its core brokerage business continue to shun trading. The debate over the fiscal cliff and uncertainty over the U.S. presidential elections caused revenue-producing trades to fall 9 percent in the fourth quarter of 2012 from a year earlier, Audette said. Thus far in January, however, trades are up about 17 percent from December 2012.

Clients also added $2.3 billion of net new brokerage assets in the quarter, echoing a trend also seen at rival brokerage companies.

TD Ameritrade Holding Corp gathered a record $15.6 billion in new client assets in the last three months of the year, up from about $10 billion in the year-earlier quarter.

Charles Schwab Corp brought in $44 billon of net new assets in its last quarter, including $22.6 billion of net inflows in December alone.

TD Ameritrade CEO Fred Tomczyk said it is unlikely that the high pace of asset-gathering will continue throughout the year.

Wealthy people at the end of last year likely accumulated lots of cash from selling businesses, property and investments in anticipation of higher U.S. tax rates in 2013 and deposited it with brokers, Richard Repetto, an analyst at Sandler O'Neill & Partners, said in an interview earlier this week.

Shares of E*Trade, which have ranged between $7.08 and $11.50 over the past year, on Thursday closed 0.3 percent lower at $10.27. They fell about 4.5 percent in after-hours trading on Thursday to $9.81. (Editing by Leslie Adler, Matthew Lewis and Carol Bishopric)

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