E*Trade, in sign of strength, to pull capital from bank

Sept 4 Wed Sep 4, 2013 9:39am EDT

Sept 4 (Reuters) - E*Trade Financial Corp on Wednesday said U.S. bank regulators had approved its request to use capital from its bank subsidiary for broader corporate purposes, a sign of progress in its recovery from bad mortgage loans that severely crippled the company.

Shares of E*Trade, which under new management is focusing on rebuilding its online discount brokerage business and eviscerating bad credits and expenses, rose nearly 7 percent in early trading.

The New York-based company said it would deploy $100 million of bank capital to its parent this month and seek approval for similar distributions of $100 million per quarter "over the near term."

In a filing with the Securities and Exchange Commission, E*Trade did not say how it will use the money. In recent presentations, it said paying off corporate debt was a priority.

The company would be able to retire its $500 million of 6 percent notes before they are callable in November 2014 if regulatory approval continues over the next four quarters, Wells Fargo Securities analyst Christopher Harris wrote in a note to investors.

Paying off the debt would add roughly 6 cents per share to E*Trade's earnings and reduce its debt by nearly 30 percent, Harris calculated.

E*Trade said approval for "upstreaming" the bank dividends came from the Office of the Comptroller of the Currency, the regulator for national banks, and from the Federal Reserve Bank of Richmond.

"Today's announcement reflects E*Trade's significant progress on our capital plan, including de-risking and deleveraging the balance sheet, bolstering our enterprise risk management capabilities and strengthening the Company's overall financial position," Chief Financial Officer Matthew Audette said in a prepared statement.

Reuters last week reported that at least four firms were bidding for E*Trade's Chicago-based market-making business, G1 Execution Services, which is expected to sell for more than $100 million. E*Trade took a $142.4 million impairment charge to close the unit earlier this summer.

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