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E*TRADE Financial Corp. Reports Operating Results (10-Q)

November 04, 2009 | About:
Dividend Growth Investor

10qk

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E*TRADE Financial Corp. (ETFC) filed Quarterly Report for the period ended 2009-09-30.

The E*TRADE FINANCIAL family of companies provide financial services including brokerage banking and lending for retail corporate and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member NASD/SIPC). Bank and lending products and services are offered by E*TRADE Bank a Federal savings bank Member FDIC or its subsidiaries. E*trade Financial Corp. has a market cap of $1.84 billion; its shares were traded at around $1.45 with and P/S ratio of 0.9. E*trade Financial Corp. had an annual average earning growth of 29.6% over the past 5 years.

Highlight of Business Operations:

During the third quarter of 2009, we exchanged $1.7 billion principal amount of our interest-bearing debt for an equal principal amount of non-interest-bearing convertible debentures. Subsequent to the Debt Exchange, $592.3 million debentures were converted into 572.2 million shares of common stock during the quarter ended September 30, 2009. The considerable increase in tangible common equity during the period was a result of the common stock issued in connection with our equity offerings and the debt conversions that occurred in the third quarter of 2009.

We incurred a net loss of $831.7 million and $1.2 billion for the three and nine months ended September 30, 2009, respectively. The net loss for the three and nine months ended September 30, 2009 was due principally to the Debt Exchange that resulted in a non-cash loss of $772.9 million (pre-tax loss of $968.3 million) on early extinguishment of debt during the third quarter of 2009. Our brokerage business continued to perform very well, resulting in trading and investing segment income of $202.5 million and $502.8 million for the three and nine months ended September 30, 2009, respectively. However, the provision for loan losses in our balance sheet management segment more than offset this strong performance, resulting in an overall segment loss of $276.1 million and $939.8 million for the three and nine months ended September 30, 2009, respectively.

Net operating interest income decreased 1% to $321.4 million and 5% to $939.6 million for the three and nine months ended September 30, 2009, respectively, compared to the same periods in 2008. Net operating interest income is earned primarily through holding credit balances, which include margin, real estate and consumer loans, and by holding customer cash and deposits, which are a low cost source of funding. The slight decrease in net operating interest income was due primarily to a decrease in our average interest earning assets of $2.3 billion and $3.0 billion for the three and nine months ended September 30, 2009, respectively, compared to the same periods in 2008, which was mostly offset by a decrease in the yields paid on our deposits for both the three and nine months ended September 30, 2009.

Read the The complete ReportETFC is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, Richard Perry of Perry Capital, Chris Davis of Davis Selected Advisers.

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