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E*Trade Financial Corp. reported a quarterly loss on Wednesday, largely due to additional reserves and writeoffs it recorded in order to ensure conformity to its new banking regulator.
The online broker and financial services company reported a net loss of $6.3-million (U.S.), or 2 cents a share in the fourth quarter, compared to a loss of $24-million, or 11 cents, a year earlier, when it set aside higher-than-expected loan loss provisions.
The company's shares fell 2.8 per cent in after-hours trading after it released the results.
While E*Trade chalked up its first loss in a year, it did manage to record its first annual profit since 2006. The company took billions in losses on risky loans in its mortgage portfolio in its banking unit following the collapse of the U.S. housing market, and has made progress in whittling down bad debt.
"It's been a long, challenging road for the company, but we did get back to profitability in 2011, and we continue to grow the key metrics of the business," E*Trade chief executive officer Steven Freiberg said in an interview.
E*Trade set aside $123-million for loan losses in the quarter, compared to $194-million a year earlier.
The company has been moving since the second half of 2011 to a new banking regulator, and in order to bring its programs in line, it said it took a $15-million writedown to adjust for loans that were currently in foreclosure, and it added $67-million to its reserves.
Separately, it paid about $11-million to settle a class action lawsuit as a result of losses in its mortgage and home equity loans portfolio in 2007.
Analysts on average expected the company to earn 20 cents a share, according to Thomson Reuters I/B/E/S, and Mr. Freiberg said the difference was the unexpected charges.
"From an operating standpoint, I would say ... we are more or less in that ballpark, maybe down a penny or so from 20 [cents]" he said.
Revenue at the No. 3 U.S. discount broker was $475-million, compared to $507.3-million a year earlier as client trading levels fell due to the choppy markets and uncertainty in the economy. Analysts had expected $488.9-million.
Daily client trades fell 7 per cent from a year earlier to an average of 140,000 a day. Commissions, fees, service charges, and other such revenue brought in $156-million, compared with $181-million a year earlier.
The average commission per trade was $10.80, compared to $11.37 in the fourth quarter of 2010.
Loans in the company's home equity portfolio that are 30 to 89 days delinquent, its greatest exposure to loan losses, rose 1 per cent from the previous quarter, but were down 24 per cent from a year earlier.
The company's loan portfolio ended the quarter at $13.2-billion, down $3-billion from the year ago quarter.