E*Trade shares tumble 11 percent after soft results

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(Global Markets) - Shares of E*Trade Financial (ETFC.O) tumbled 10.7 percent after the company reported a surprising loss late on Wednesday, due to higher-than-expected loan provisions in its troubled banking unit and a slowdown in trading levels.

The online brokerage and financial services company's shares tumbled 11.6 percent, or $1.09, to $8.25 in morning trading

E*Trade reported a net loss of $6.3 million, or 2 cents a share in the fourth quarter, compared with a loss of $24 million, or 11 cents, a year earlier.

Analysts on average expected the company to earn 20 cents a share, according to Thomson Global Markets I/B/E/S.

The company said it has been transitioning since the second half of 2011 to a new banking regulator, and to bring its programs in line, it took a $15 million writedown to adjust for loans that were currently in foreclosure, and it added $67 million to its reserves.

In total, E*Trade said it set aside $123 million for loan losses in the quarter, compared with $194 million a year earlier.

David Chiaverini, an analyst at BMO Capital Markets, said he had been expecting the company to record $48 million in loan loss provisions.

E*Trade took billions of dollars in losses on risky loans in the mortgage portfolio of its banking unit following the collapse of the U.S. housing market. It has made progress with its debt and credit issues, chalking up its first full-year profit since 2006, but the loan book continues to drag on earnings.

Separately, the company paid about $11 million in the quarter to settle a class-action lawsuit as a result of losses in its mortgage and home equity loans portfolio in 2007.

Minus the one-time charges, E*Trade would have likely earned just under 17 cents a share, Richard Repetto, an analyst at Sandler O'Neill Research, said in a note to clients.

Daily client trades at the brokerage were down 7 percent from a year ago as investors pulled back from choppy markets. E*Trade also said its net interest margins would fall below its earlier forecasts in 2012 due to the ongoing soft interest rate environment.

While Repetto said he believes E*Trade management "is doing all the right things," he downgraded the stock to "hold" from "buy" due to the difficult trading environment and net interest margin compression.

Goldman Sachs cut E*Trade to "neutral" from "buy," while Macquarie cut its price target for the firm to $8 from $10, and BMO Capital Market cut its price target to $8 from $9.

(Reporting By John McCrank in New York; Editing by Derek Caney and Maureen Bavdek)