UPDATE 3-E*Trade reports Q3 loss, does not see profit in Q4
* Loss of 60 cents per share from continuing operations
* Raises loan loss provision to $518 million
* Does not expect profit in fourth quarter
* Says eligible for U.S Capital Purchase Program (Adds shares, assets, DARTS, and government program details)
NEW YORK, Oct 21 (Reuters) - E*Trade Financial Corp (ETFC.O), the U.S. discount brokerage hardest hit by the mortgage market meltdown, reported a much steeper-than-expected quarterly loss on Tuesday and increased its loan loss provision by 62 percent.
The company, which in January said it expected to turn a profit this year, now says it does not expect a profit in the fourth quarter, and will wait until the end of the year before discussing the outlook for 2009, "given how uncertain the future economic environment is."
E*Trade said it expects home equity losses in the 2008 to 2010 period of about $1.8 billion, up 20 percent from its prior forecast.
"This represents an unusual quarter in which we took a higher view of losses in the future," Donald Layton, E*Trade's chief executive, said in an interview. "Some people would say we're getting the problem behind (us)."
Layton said E*Trade was "very interested" in the U.S. government's $250 billion Capital Purchase Program, for which the company believes it is eligible.
Because details of the government's emergency program are still unclear, for now E*Trade expects to hold to maturity the home loans on its balance sheet, Layton said.
The company has suffered under the weight of bad bets it took on mortgage-related securities, the values of which have tumbled as foreclosures ballooned into a global credit crisis.
E*Trade lost $50.5 million, or 9 cents a share, in the period ended Sept. 30, compared to a loss of $58.4 million, or 14 cents a share, in the same period a year earlier.
The company reported a loss from continuing operations of 60 cents a share. On average, analysts polled by Reuters Estimates expected E*Trade to report a loss of 35 cents a share from continuing operations. For detailed results, please see: [nWNAB1768]
The company's $518 million loan loss provision is up from $319 million in the previous quarter and nearly triple the year-earlier level. It said it expects to set aside lower amounts in coming quarters, and that it would begin to write off fewer loans next year.
"The provision was significantly higher than what we had anticipated," said Richard Repetto, analyst at Sandler O'Neill, who in a recent report said he expected E*Trade to report a $354 million provision.
Asked what got in the way of E*Trade's turnaround plan -- which included cost-cutting and selling non-core assets -- Layton said: "The housing crisis being worse, and therefore our credit losses being higher than expected nine months ago."
"We're not distinguished in this in doing poorly. We're going along with everybody else," the CEO said.
The market volatility set off by the financial crisis helped boost E*Trade's key trading measure, the daily average revenue trades (DARTS), by 7 percent in the quarter.
Management said on a conference call DARTS are "quite high" so far in October.
Revenue was down 21 percent at $378 million in the period, while operating expenses were down about 17 percent.
The discount brokers, including larger rivals Charles Schwab (SCHW.O) and TD Ameritrade (AMTD.O), rely increasingly on client assets under management for revenues. E*Trade said on Tuesday its customer cash and deposits were down 13 percent from last year.
E*Trade's stock was little changed in after-hours trading. (Reporting by Jonathan Spicer; editing by Carol Bishopric)
