* Customer trades rise 16 percent from end of 2012
* New CEO to deemphasize advertising, focus on "analytical"
* Capital ratios rise but firm still cutting costs -CFO
By Jed Horowitz
NEW YORK, April 18 E*Trade Financial Corp.
on Thursday reported progress in fixing its
loss-plagued bank lending businesses and strengthening its core
discount brokerage business.
The New York-based company said first-quarter net income
fell 78 percent from a year earlier to $35 million, or 12 cents
a share, but improved from a loss of $186.1 million in last
year's fourth quarter.
"The first quarter was encouraging, as we posted solid
sequential growth in customer engagement, accounts and assets,"
Chief Executive Paul Idzik said in a prepared statement.
Idzik joined in January as E*Trade's sixth CEO since 2009, a
sign of the turmoil that has battered the firm.
The company's earnings per share matched the average
estimate of 17 analysts, according to Thomson Reuters I/B/E/S.
E*Trade's revenue, however, missed analysts' estimates
because of lower-than-expected gains on sales of loans and
securities, and lower net interest income as short-term rates
fell and the company's balance sheet shrank.
The company reported first-quarter revenue of $419.9 million
against the $438.6 million expected by analysts on average.
Profit was driven by 30,000 new brokerage accounts in the
quarter, $3.1 billion in new customer assets, and
commission-generating daily trades that grew 16 percent from the
fourth quarter of 2012.
Operating expenses jumped $10 million from the fourth
quarter to $296 million, including $12 million in severance and
restructuring costs. Total headcount, including consultants,
fell 11 percent from a year ago to 2,937 people.
Among those forced out since Idzik's arrival were Nicholas
Utton, E*Trade's chief marketing officer, and Gregory Framke,
its chief operating officer and head of technology.
Three board members also are stepping down before the
company's annual meeting in May, including Citadel LLC founder
Kenneth Griffin. Citadel, which had been lobbying for years to
sell the company, was E*Trade's biggest shareholder until it
sold its remaining 9.6 percent stake in March.
"Ensuring we have the right leadership team in place is a
core priority of mine," Idzik said on a conference call with
analysts. "I will very much miss Ken's drive, counsel and
The company said it has no plans to replace Framke but is
looking for a new marketing chief.
E*Trade, known for its precocious-baby ads, needs a "much
sharper" marketing focus that deemphasizes advertising and looks
more closely at "analytics," Idzik said.
E*Trade's provision for loan losses fell to $43 million from
$74 million in the fourth quarter, a sign of a contraction in
its bad loans. It also trimmed its balance sheet more than
expected, causing net operating interest income to fall to $241
million from $285 million a year ago.
As a result of loan sales and deposit transfers, total
assets fell $2.4 billion during the quarter to $45 billion,
bringing the company close to its long-term goal of reducing
assets by $8.5 billion. It expects to hit the goal this quarter
after transferring $500 million of customer cash to an outside
bank, a company official said.
E*Trade's Tier One leverage ratio, a key measure of its
capital strength that is being closely watched by investors,
rose to 9.3 percent of assets from 8.7 percent a year ago. The
company expects to ask regulators to let the bank move excess
cash to its holding company when the ratio reaches 9.5 percent,
giving it cash for growth at the brokerage firm and for
potential distribution to investors through dividends or share
"There are lots of things to do before we make that
request," Chief Financial Officer Matthew Audette cautioned on
the call with analysts. E*Trade still has to "fix" its
risk-management capabilities and complete more cost-cutting, he
Shares of E*Trade, up 6.6 percent since the beginning of the
year, gained another 3.8 percent after the results were released
on Thursday following the close of the U.S. stock market.