E-Trade Misses Estimates (ETFC)

E*TRADE Financial Corporation ETFC reported fourth quarter earnings that badly missed Wall Street estimates. For the fourth quarter, E-Trade reported a loss of 11 cents per share, versus Wall Street estimates of 4 cents per share. Revenue for the quarter was $518 million, versus estimates of $322 million. E*TRADE delivered significant operating performance improvement in 2010 driven by strength in our brokerage business, declining loan loss provision on continued positive legacy asset trends, and general expense management,” said Steven Freiberg, Chief Executive Officer of E*TRADE Financial Corporation. “Our ongoing investment in the customer experience resulted in strong organic growth in net new brokerage assets, margin receivables, and brokerage accounts – even as investor engagement lagged across the industry during much of the year.” Mr. Freiberg continued: “Our fourth quarter operating results were strong notwithstanding several expenses that we do not expect to incur in future periods as well as an increased investment in advertising. “These expenses included a $60 million increase to the qualitative component of our loan loss reserve, reflecting an increase from five percent to 15 percent of the general allowance for loan losses. This increase reflects the growing size and importance of our loan modification program as well as the limited historical information or industry knowledge of how these modified loans will perform over the cycle. We continue to be pleased with the progress of our legacy loan portfolio, in particular trends in delinquencies and our loan modification program, and we do not expect to increase the reserve percentage in future periods. In addition, we incurred $15 million of expenses related primarily to restructuring and severance, including the final stages of our international local operations closures, all of which will drive future savings. “At the same time, we believe our increased advertising spend is effectively supporting our strategy to attract and retain customers and increase brokerage inflows. “We enter the year with strong momentum; continue to position the company for long-term, sustainable profitability; and expect to be profitable in 2011,” concluded Mr. Freiberg. Shares closed the regular session at $15.79, a gain of 26 cents.