By Jonathan Spicer
NEW YORK, April 28 (Reuters) - E*Trade Financial Corp, a retail brokerage, said it is facing regulatory pressure to boost capital as it posted its seventh straight quarterly loss, and its shares fell 23 percent in after-hours trade.
The online brokerage, which has suffered significant credit losses in its mortgage lending business, said the Office of Thrift Supervision told the company to raise new capital for its bank and reduce the leverage of its holding company in the near term.
The company said it may raise capital from public markets, private investors, or both, which would end up creating 'significant dilution' from shareholders. Any dilution would be a negative for hedge fund Citadel, which owns a substantial amount of E*Trade shares and debt.
The retail brokerage is quickly running out of options. It is still waiting to hear from the U.S. government on its six-month-old application for $800 million in relief funds under the Troubled Asset Relief Program, or TARP. More than 500 U.S. banks have already received funds under that program.
E*Trade lost $232.7 million, or 41 cents per share, in the quarter ended March 31, compared with a loss of $91.2 million, or 20 cents per share, in the same period a year ago. Revenue was down 6 percent at $497.3 million.
On average, analysts expected the New York-based discount broker to earn 40 cents per share.
E*Trade shares dropped 56 cents to $1.90 after hours, when the company reported results.
The company set aside $454.0 million for loan loss provisions in the quarter, down from $513 million in the previous quarter.
Before Tuesday's results, the shares had more than doubled since the beginning of the year, helped by signs of improvement in its home equity portfolio. Early-stage loan delinquencies were down 25 percent in the first quarter, compared to the previous quarter.
Net charge-offs -- or loans on which E*Trade does not expect to be repaid -- were $334 million, up 9 percent from the previous quarter. Layton said in an interview it was likely charge-offs would peak in the current quarter.
E*Trade's loan loss provision accounts for its bad bets on mortgages. CEO Donald Layton said the company was on track to set aside smaller amounts in coming quarters.
E*Trade Bank's Tier 1 capital ratio, a measure of capital strength, was 5.63 percent at quarter's end. Analysts see E*Trade's successful TARP application as necessary for the company's survival in its current form.
E*Trade's trading volume, known as DARTS, slipped 10 percent from the previous record period to an average of 194,000 per day.
The latest market bottom and a sharp bounce in stocks propelled trading in the latest quarter.
(Reporting by Jonathan Spicer, editing by Leslie Gevirtz and Matthew Lewis) Keywords: ETRADE/ (jonathan.spicer@thomsonreuters.com; +1 646-223-6253; Reuters Messaging: jonathan.spicer.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, April 28 (Reuters) - E*Trade Financial Corp, a retail brokerage, said it is facing regulatory pressure to boost capital as it posted its seventh straight quarterly loss, and its shares fell 23 percent in after-hours trade.
The online brokerage, which has suffered significant credit losses in its mortgage lending business, said the Office of Thrift Supervision told the company to raise new capital for its bank and reduce the leverage of its holding company in the near term.
The company said it may raise capital from public markets, private investors, or both, which would end up creating 'significant dilution' from shareholders. Any dilution would be a negative for hedge fund Citadel, which owns a substantial amount of E*Trade shares and debt.
The retail brokerage is quickly running out of options. It is still waiting to hear from the U.S. government on its six-month-old application for $800 million in relief funds under the Troubled Asset Relief Program, or TARP. More than 500 U.S. banks have already received funds under that program.
E*Trade lost $232.7 million, or 41 cents per share, in the quarter ended March 31, compared with a loss of $91.2 million, or 20 cents per share, in the same period a year ago. Revenue was down 6 percent at $497.3 million.
On average, analysts expected the New York-based discount broker to earn 40 cents per share.
E*Trade shares dropped 56 cents to $1.90 after hours, when the company reported results.
The company set aside $454.0 million for loan loss provisions in the quarter, down from $513 million in the previous quarter.
Before Tuesday's results, the shares had more than doubled since the beginning of the year, helped by signs of improvement in its home equity portfolio. Early-stage loan delinquencies were down 25 percent in the first quarter, compared to the previous quarter.
Net charge-offs -- or loans on which E*Trade does not expect to be repaid -- were $334 million, up 9 percent from the previous quarter. Layton said in an interview it was likely charge-offs would peak in the current quarter.
E*Trade's loan loss provision accounts for its bad bets on mortgages. CEO Donald Layton said the company was on track to set aside smaller amounts in coming quarters.
E*Trade Bank's Tier 1 capital ratio, a measure of capital strength, was 5.63 percent at quarter's end. Analysts see E*Trade's successful TARP application as necessary for the company's survival in its current form.
E*Trade's trading volume, known as DARTS, slipped 10 percent from the previous record period to an average of 194,000 per day.
The latest market bottom and a sharp bounce in stocks propelled trading in the latest quarter.
(Reporting by Jonathan Spicer, editing by Leslie Gevirtz and Matthew Lewis) Keywords: ETRADE/ (jonathan.spicer@thomsonreuters.com; +1 646-223-6253; Reuters Messaging: jonathan.spicer.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.