UPDATE 1-E*Trade swings to 4th-qtr profit as bad loan costs fall

Thu Jan 23, 2014 6:31pm EST

NEW YORK Jan 23 (Reuters) - One year after hiring a new chief executive to help it recover from a near brush with bankruptcy, E*Trade Financial Corp said it earned $57.9 million in the fourth quarter, reversing a year-earlier loss, as clients revved up trading while costs for bad loans fell.

The New York-based company on Thursday reported a profit of 20 cents a share, the highest in seven quarters. Analysts, on average, estimated 19 cents, according to Thomson Reuters I/B/E/S. E*Trade had reported a loss of $186.1 million, or 65 cents a share, in the year-earlier quarter.

E*Trade's attempt to sell mortgages and other credit products through its bank to offset volatile market-related commissions brought the firm close to collapse during the 2008-2009 financial crisis and required an infusion of more than $2.6 billion from hedge fund Citadel LLC.

Under new CEO Paul Idzik, the firm is whittling down its loan portfolio, building capital and focusing on its core retail business.

In a sign of its diminishing loan problems, E*Trade's reserve for loan losses in the fourth quarter fell to $17.3 million, down from $74.4 million a year earlier, while its entire loan portfolio dipped by $2 billion to $8.6 billion.

Revenue for the quarter fell to $217.1 million from $320.3 million a year earlier.

"It's been quite an eventful year," Idzik said on the conference call. "I found colleagues very much in need of new leadership."

Since his arrival last January, Idzik has replaced almost the entire management team at E*Trade, refinanced much of its high-cost debt, sold its market-making businesses and eliminated $110 million of operating expenses.

CLIENT CONFIDENCE

Like competitors TD Ameritrade Holding Corp and Charles Schwab Corp, which earlier reported quarterly gains of 51 percent and 31 percent, respectively, E*Trade said improving confidence in the economy and rising stocks is boosting customer trading.

Average daily trades last quarter jumped 25 percent to a two-year high of 160,000 and have soared to 190,000 thus far in January, Chief Financial Officer Matthew Audette said on the conference call. Lucrative margin loans made to clients against their portfolios reached a five-year high.

E*Trade added 22,000 new brokerage accounts in the fourth quarter, ending 2013 with 3 million accounts, up 3 percent from a year earlier.

Expenses rose 3.4 percent in the quarter, due in part to a $5 million restructuring charge. Despite hundreds of layoffs in the past year, the firm has been hiring to improve its core brokerage services and ended the year with 3,009 employees, up 1 percent from a year ago.

"Now is the time to turn the investments up," Audette said on the conference call.

Shares of E*Trade, up 107 percent in the past 12 months, fell 2.2 percent on Nasdaq on Thursday before the company released its results.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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