It's no secret: E*Trade Financial Corp.'s (NASDAQ:ETFC) grand experiment of trying to transform itself into a player in the mortgage market has been a complete failure. The online broker tried to diversify its revenue stream with an experimental foray into toxic mortgages, which only left the company deep in debt. How deep the current status of the trouble is will be seen when E*Trade's second-quarter earnings are announced Wednesday after market close at 5 p.m. ET.
Analysts expect the company to post its eighth-consecutive quarterly loss at 38 cents per share. That number is in the ballpark of the 41 cents per share, or $232.7 million, loss in the first quarter that E*Trade registered. The company got some breathing room in the second quarter when it exchanged $1.7 billion of its interest-bearing senior unsecured bonds for convertibles notes due 10 years from now. Additionally, the company raised additional capital from a $600 million stock offering. But is this enough for E*Trade? For now, possibly yes, but investors aren't expecting to see a profit in 2009 and possibly in 2010 as well, an outlook that'll likely continue to weigh down the stock, which closed at $1.29 on Tuesday.
E*Trade may see a brighter future with a sale or at least a major divestment to a competitor. Why? The online trading sector seems to be a mature sector with new customers hard to come by, especially with the downturn of the equities market. The experiment of expanding into mortgages was an abysmal failure, and there's not many other sectors that E*Trade can grow in, except possibly by entertaining a deal with a peer or an established bank looking for an online broker play. - Gerald Magpily
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