The Wall Street Journal-20080125-Credit Crunch- E-Trade Swings to Net Loss After Charge for Sale of Real-Estate Holdings
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Credit Crunch: E*Trade Swings to Net Loss After Charge for Sale of Real-Estate Holdings
E*Trade Financial Corp. swung to a fourth-quarter loss, as the online brokerage firm took a $2.28 billion pretax loss on the sale of a real-estate portfolio to Citadel Investment Group.
The New York company booked a net loss of $1.71 billion, or $3.98 a share, compared with a year-earlier net income of $176.7 million, or 40 cents a share.
The bigger-than-expected loss also included a $101.2 million charge for goodwill, the difference between what assets are bought for and what they are valued at on the books.
Still troubling investors: The firm expects to take additional write-downs of $400 million to $600 million this year on its mortgage portfolio, largely because of losses related to the $12-billion in home-equity loans it has. E*Trade acting Chief Executive Jarrett Lilien said expects the current environment to get worse. He added that over the next three years he expects losses on the firm's mortgage assets to total from $1 billion to $1.5 billion.
E*Trade had a rough 2007. Although best known as an online brokerage, the company bet big on mortgages. Amid the mortgage market meltdown the firm has suffered big losses and its stock has fallen 86% of the past 12 months. Late last year, CEO Mitch Caplan stepped down and the firm sold the assets to Citadel, which injected a much needed $1.75 billion into E*Trade.
"There is no home-run answer to the situation we are in," Mr. Lilien said in an interview. "We need to prove ourselves now and that will happen in the coming months."
The results included $402.3 million in loan-loss provisions.
E*Trade reported negative revenue of $2 billionafter write-downs and loan-loss provisions. Year-earlier revenue was $628.8 million.
E*Trade also announced a restructuring plan that it expects will return it to profitability this year.
The plan includes asset sales and potential capital-market transactions to strengthen capital and liquidity.
