January 9, 2008 / 1:02 PM / 13 years ago

E*Trade sells more securities, lowers debt

BANGALORE (Reuters) - E*Trade Financial Corp (ETFC.O) disclosed on Wednesday it had sold an additional $3 billion of mortgage-backed securities and said clients worried about its finances are not draining assets from the company.

Shares of E*Trade, the worst performer in the Standard & Poor's 500 index .SPX in 2007, rose 18 cents, or 8 percent, to $2.43 in morning Nasdaq trade after touching their lowest level since 1996 on Tuesday.

E*Trade added 87,000 gross new accounts in December. Total client assets at year-end were $190 billion, compared with $192 billion a month earlier. Several brokerages had raised concerns that slumping client assets could hurt the company’s profitability.

In November the company sold a portion of its mortgage portfolio to Citadel Investment Group and secured a $2.55 billion cash infusion, amid speculation that it might face bankruptcy. Citadel agreed to pay $800 million for the portfolio.

“They have not lost their assets since the Citadel transaction, contrary to market rumor,” analyst Richard Repetto of Sandler O’Neill & Partners LP said by phone.

The $3 billion securities sale included a combination of mortgage securities and municipal bonds, New York-based E*Trade said.

“We have taken important steps in the execution of our turnaround plan by reducing balance sheet-related risk and maintaining strong bank capital levels,” acting Chief Executive Jarrett Lilien said.

E*Trade also formed a special committee to help reduce risk in its real estate portfolio. The committee will be led by Robert Burton, chief operating officer of E*Trade Bank.

The company confirmed plans reported by Reuters on Tuesday to exit the U.S. institutional sales business, eliminating about 30 jobs.

As part of its turnaround plan, the brokerage reduced its debt levels by eliminating about $3.5 billion in Federal Home Loan Bank advances and repurchase agreements.

Sandler’s Repetto said the asset sale helped in repayment of wholesale borrowings and was essential for the company’s survival.

Rival discount brokerages such as Charles Schwab Corp SCHW.O and TD Ameritrade Holding Corp (AMTD.O) have been benefiting from E*Trade’s troubles.

Schwab added $12.1 billion in net client assets for November, its best showing in the last three months.

TD Ameritrade’s average daily trades per client reached a record of 339,000 in November.

Reporting by Dinesh Nair; Editing by John Wallace

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