Does E*TRADE Need a White Knight?

As much as Charles Schwab (Nasdaq: SCHW  ) enjoys a good round of volatility, so does E*TRADE Financial (Nasdaq: ETFC  ) .

Last night, the far-fallen discount broker reported a jump in third-quarter earnings. Revenue was $507.3 million, up from the prior year's $489.4 million. Net income surged to $70.7 million, or $0.24 per share, a massive jump from last year's $8.4 million and $0.03-per-share profit. However, a good chunk was attributed to a $62 million income tax benefit from liquidating a European subsidiary that boosted results.

Revenue from commissions jumped 27% to $113.4 million and comprised 22% of the quarter's sales. E*TRADE CEO Steven Freiberg attributed the strength in the brokerage business to significant market volatility, as daily average revenue trades, or DARTs, increased 30% year over year to roughly 165,000. At the end of the quarter, the broker had 4.3 million accounts including 2.8 million brokerage accounts. The company opened 13,000 net new brokerage accounts, while total client assets are $160 billion.

E*TRADE's troubled loan portfolio has been an overhang for years, but loan-loss provisions encouragingly dropped 35% to $98 million. Special-mention delinquencies and total at-risk delinquencies dropped 24% and 28% year over year, respectively.

The company had recently hired Goldman Sachs (NYSE: GS  ) to help advise and evaluate strategic options for a possible sale of the company, by the urging of hedge fund Citadel. There has been "good progress" but no meaningful updates yet. My vote would be that E*TRADE ends up being picked up by TD AMERITRADE (Nasdaq: AMTD  ) , but those rumors have persisted for years without fruition.

E*TRADE has stepped back from the brink. There was a very real possibility that it would go under during the height of the financial crisis, but at this point it has mostly regained its footing. The brokerage industry is seeing some consolidation as Schwab is still in the process of picking up optionsXpress, so the environment is ripe for a white knight to swoop in and acquire E*TRADE, if only it were willing to take the whole package, bad loans and all.

  • Add E*TRADE to your watchlist to see if it gets acquired.

Fool contributor Evan Niu used to be a licensed stockbroker at Charles Schwab. He holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Charles Schwab. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 20, 2011, at 5:34 PM, ETMatyahoo wrote:

    Perhaps more realistic would be taking it back into the private fold. FMR LLC (Fidelity) is still in the business. Scott-trade could also be mentioned, but is probably doing well enough without the complications.

    Or, if banking regulations grow even more lax, Goldman could just take it lock stock and barrel itself! Heh.

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