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UPDATE 2-E*Trade profit get tax boost as provisions fall
April 19, 2012 / 8:30 PM / in 6 years

UPDATE 2-E*Trade profit get tax boost as provisions fall

* Q1 EPS of 22 cents versus expectations of 9 cents

* EPS included income tax benefit of 9 cents

* Loan loss provisions fall 11.2 pct; trading drops

By John McCrank

NEW YORK, April 19 (Reuters) - E*Trade Financial Corp said on Thursday its quarterly profit rose as an income tax benefit and lower provisions for loan losses in its legacy mortgage portfolio helped offset soft client-trading numbers.

First-quarter net income at the online broker rose to $62.6 million, or 22 cents a share, from $45.2 million, or 16 cents, a year earlier.

E*Trade recorded an income tax benefit of $26 million, or 9 cents a share, related to losses it took in 2009 on a debt exchange. It said that at the time, the losses were incorrectly treated as non-deductable.

Revenue of $489.4 million included $31 million of net gains on loans and securities, and a net impairment of $4 million. Revenue in the year-earlier period was $537 million.

Analysts, on average, expected the New York-based firm to earn 9 cents per share including items on revenue of $468.4 million, according to Thomson Reuters I/B/E/S.

Trading volumes suffered at brokerages in the quarter as retail investors largely stayed on the sidelines due to uncertainty over the economic recovery, and lower volatility hampered trading among traditionally active investors.

E*Trade’s daily client revenue trades fell 11 percent to an average of 157,000 a day.

Average commission per trade fell to $11.04 from $11.32 in the first quarter of 2011.

E*Trade suffered several years of losses starting in 2007 following a disastrous foray into mortgages by its banking unit.

The company said that during the most recent quarter, loan-loss provisions fell to $71.9 million, from $116.1 million a year earlier.

Loans in E*Trade’s home equity portfolio that were 30 to 89 days delinquent - seen as the company’s greatest exposure to loan losses - were down 15 percent from the previous quarter, and down 24 percent from a year earlier.

Clients opened 46,000 net new brokerage accounts, up from 10,000 in the prior quarter, but down from 51,000 a year earlier. At quarter’s end, E*Trade had 4.4 million customer accounts, including 2.8 million brokerage accounts.

Net new brokerage assets rose by a record $4 billion during the quarter. Brokerage-related cash increased by $3.3 billion to $31 billion, while the clients were net buyers of about $100 million of securities.

E*Trade had $202 million in total customer assets, versus $189 million in the year ago period.

Rival discount brokers Charles Schwab Corp and TD Ameritrade Holding Corp reported their results for the quarter earlier this week. Both saw profits drop 20 percent, in line with expectations, as a result of the soft trading and interest rate environments.

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