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Tuesday, October 21, 2008
E*Trade, Raymond James Hurt by Credit Crunch
Dunstan Prial
FOXBusiness
Brokerage firms E*Trade Financial (ETFC) and Raymond James (RJF) showed scars similar to those of their peers in their earnings amid the economic downturn.
Online brokerage firm E*Trade Financial, one of the hardest-hit retail banking companies during the recent financial crisis, said Tuesday it lost $50.5 million, or nine cents a share, in the third quarter on lower commissions and costs related to bad loans.
The results included a $450 million pre-tax gain from the sale of two business units. Excluding those one-time gains, the loss was 60 cents a share. Analysts had predicted a loss of 35 cents per share.
During the same period a year ago, E*Trade lost $58.5 million, or 14 cents.
Battered by bad home equity loans made at the peak of the U.S. housing bubble in 2005 and 2006, E*Trade has reported losses in five consecutive quarters. The company said it doesn’t expect to make money during the fourth quarter, but may return to profitability in 2009 as it adds customers.
Like many financial companies affected by the collapse of the housing market, E*Trade’s shares have tumbled in 2008, falling 35%. The stock closed at a 12-year low of $2.15 on Oct. 15.
E*Trade said it expects home equity losses between 2008 and 2010 to reach $1.8 billion, up 20 percent from an earlier forecast.
Tuesday’s results included gains from the sale of its Canadian unit to Bank of Nova Scotia and a stake in an Indian brokerage.
E*Trade said it will participate in the U.S. Treasury's plan to buy equity stakes in banks, which would allow the company to raise as much as $800 million in capital. Treasury Secretary Henry Paulson has offered to inject $125 billion into banks, part of a $700 billion industry bailout that also may include buying defaulted loans.
Fellow brokerage firm Raymond James Financial said Tuesday that impact from the broad financial crisis caused fiscal fourth quarter earnings to fall 22%.
“While we have successfully avoided almost all of the carnage suffered by the larger firms in the financial services sector through abstaining from participating in subprime mortgages, credit default swaps and high leverage, the fallout has definitely affected us,” Chairman and Chief Executive Thomas A. James said in a prepared statement.
Net income totaled $49.1 million, down from $63 million during the same period a year ago.
Earnings per share came to 41 cents, compared with 53 cents in 2007. Analysts had predicted earnings of 51 cents per share last quarter.
Total revenue fell 9% to $760 million from $839 million last year.
The company said stock market losses cut into retail client activity and asset based fees, and initial public offerings and other new issue activity “have largely disappeared.”
In addition, trading results are down as stock prices have “gyrated irrationally.”
As a result of the global shutdown in credit markets, Raymond James said its unsecured credit line was cut in half to $100 million.
Dow Jones reported that CEO James predicted an economic recovery should occur in the second half of 2009.
FOX Translator
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If you've seen TV footage of an active trading pit, you've probably noticed the atmosphere is uproarious and wild. The reason for all the shouting? Open outcry.
On exchange floors that use the open-outcry system, traders shout prices they want to sell while others yell back the price they want to buy at. They also use hand gestures to communicate with each other.
This system has been used for a long time, but is being replaced with modern technology. Some argue electronic exchanges can do the job faster and more accurately. One of the few exchanges that continue to use open outcry is the New York Mercantile Exchange.
