E-Trade 2Q profit drops 16 percent to $40 million

Associated Press

NEW YORK (AP) — Online broker E-Trade Financial Corp. on Thursday reported a 16 percent decline in second-quarter earnings as investors made far fewer trades than a year ago.;

Despite a 13 percent drop in revenue, the results exceeded Wall Street's expectations.

Net income for the April-through-June period was $39.5 million, or 14 cents per share, down from $47.1 million, or 16 cents per share, in the same quarter a year ago.

Revenue was $452.4 million, down from $517.6 million in the second quarter of 2011.

Analysts surveyed by FactSet expected earnings of 11 cents per share on revenue of $439 million.

The company added new brokerage accounts at a faster pace than before — 46,000 in the quarter, compared with 25,000 in the same period a year earlier. And customers added $2.2 billion in new brokerage assets.

But trading was down, reflecting what CEO Steven Freiberg called "low levels of retail investor engagement."

The 139,000 daily average revenue trades in the quarter represented a 6 percent drop from a year ago. Commissions, fees and service charges, principal transactions, and other revenue in the quarter sank to $154 million from $174 million.

Faced with less trading activity, Freiberg said E-Trade was increasing its focus on strategic cost management, deleveraging and risk reduction to strengthen earnings.

The company, based in New York, reduced its provision for loan losses in its loan portfolio to $67.3 million from $103.1 million a year ago. It also lowered net charge-offs to $120.7 million, a decrease from $178.1 million in the second quarter of 2011. Charge-offs are loans that are unlikely to be repaid.

E-Trade ended the quarter with $193 billion in total customer assets, down by $9 billion during the three months but still up from $186 million a year ago.

It had 4.4 million customer accounts at the end of the quarter, up 1 percent from a year ago. That included 2.87 million brokerage accounts.

E-Trade shares fell 7 cents to $7.75 in extended-hours trading. They lost 8 cents to close at $7.82 in the regular session.

The shares have lost more than half their value in the past year. Adjusting for a stock split, they are down 97 percent from their peak in 2006.