UPDATE 1-E*Trade loss beats Street, CEO sees future gains

* Loss 5 cts/shr, excluding items, vs Street's 6 cts loss

* CEO expects to gain share from older rivals in long run

* Shares off 5 cts, or 3.2 pct

By Jonathan Spicer

NEW YORK, Oct 27 (Reuters) - E*Trade Financial Corp (ETFC.O) reported its ninth straight quarterly loss on Tuesday but beat Wall Street expectations as the online broker's loan loss troubles continued to ease, and the CEO looked forward to grabbing market share from rivals.

The U.S. company, which has aggressively raised capital to repair damage from the mortgage market crisis, also backpedaled slightly in its home equity portfolio, where special mention delinquencies edged up 1 percent.

E*Trade shares fell 5 cents, or 3.2 percent, after closing at $1.57 on Nasdaq, reflecting investor worries that loan delinquencies could stall the company's turnaround.

Still, daily average trading rose 7 percent from last year as individual investors took advantage of the stock market rise. E*Trade Chief Executive Donald Layton said in an interview that although traders have been resilient, there is much uncertainty over volumes in the next few quarters.

"It's better to manage from caution at this point," Layton said. "But I believe that (in the) long run, online, we'll steal market share from old traditional brokers ... and have a superior growth rate."

E*Trade reported a loss of $831.7 million, or 66 cents per share, in the quarter ended Sept. 30, compared with a loss of $143.2 million, or 22 cents, in the same period a year earlier.

Excluding a largely anticipated pretax charge of $968 million related to its debt exchange, the company's loss was $59 million, or 5 cents per share.

That was a penny better than analysts' average forecast of a loss of 6 cents per share, according to Thomson Reuters I/B/E/S. There was a wide range of estimates.

Revenue jumped 52 percent to $575 million.

E*Trade's provision for loan losses was $347 million, down from $405 million in the previous quarter and from a peak of $518 million a year ago. It logged $352 million in charge-offs, down from $386 million in the previous quarter.

"We expect them to continue to decline" quarter over quarter "for a substantial period of time," Layton said of the charge-offs.

BAD REAL ESTATE BETS

New York-based E*Trade's troubles stem from loans its bank made earlier this decade in the real estate market. The company, which some see as a takeover target, was under regulatory pressure this year to raise capital and shore up its balance sheet.

It completed a common stock offering and a $1.76 billion debt swap in the last few months, helped in large part by hedge fund firm Citadel Investment Group, which now holds a stake of nearly 10 percent in the online brokerage.

While special mention delinquencies in the home equity portfolio -- which represent the company's greatest exposure to loan losses -- edged higher in the latest quarter, Layton noted that the closely watched figure dropped 34 percent in the first four months of this year.

"There is no way that was going to keep up. So we knew we would have a period of decline exhaustion," said Layton, who will step down by year end. [ID:nN09322962]

"We're watching it carefully but we don't believe" there is anything to worry about, he added, referencing but not revealing preliminary numbers so far in October.

Layton declined to predict when E*Trade would be back in the black, saying it depends heavily on future declines in loan loss provisions. "We seem to have ended" the economic decline from a gross domestic product perspective, he said.

"I don't see the economy being something that would dramatically improve our loan portfolio," the CEO added. (Reporting by Jonathan Spicer; Editing by Gary Hill)