E-Trade Exits Wholesale Mortgage, Revises 2007 Guidance
- 17.09.2007
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E-Trade Financial announced today that it was exiting wholesale mortgage as part of its move to return to “core businesses” that benefit its retail customers. The company is also upping its amount of loan loss reserves as a result of “charge-offs expected as a result of the disturbance in the credit markets.” The aggregate loss reserve provision is $245 million. From the release:
With this additional reserve, allowance for loan losses as a percentage of non-performing loans is expected to increase to 75 percent based on assumptions for the second half of the year, up from 45 percent on June 30, 2007. Within home equity loans, where the Company and the marketplace have seen the most significant stress, the coverage will be approximately 100 percent, up from 51 percent as of June 30, 2007.
As a result of the actions outlined above, the Company is revising its earnings outlook for 2007 to account for 1) higher provision for loan losses; 2) potential securities impairments; 3) slower balance sheet growth and composition expectations; and 4) exit and other restructuring charges. For the full year 2007, E*TRADE FINANCIAL expects GAAP net income of between $450 million and $500 million, and earnings per share of between $1.05 and $1.15 per share. This is down from its previous range of $1.53 to $1.67.
No word on the number of jobs affected; but I imagine it is significant. Just another sign of the times, and certainly not the last notice like this. If you think of all of the companies like E-Trade, AIG, H&R Block that got in to mortgage as an adjunct to their core business models there is still a decent list left of those that will probably make the move out of the sector to preserve liquidity and earnings in other, more profitable business units.
