Why E*TRADE Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of investment brokerage firm E*TRADE Financial (Nasdaq: ETFC  ) were active on the sell side, falling as much as 11%, after reporting worse-than-expected third-quarter earnings results.

So what: For the quarter, E*TRADE reported a loss of $0.10 per share versus expectations for a profit of $0.08. According to E*TRADE, the loss was one-time in nature and stemmed from the failure of a third-party to report key data about loan holders. Perhaps more concerning than the surprise loss was the fact that sequential loan loss provisions more than doubled, to $141 million, from just $67.3 million in the previous quarter. To add icing to the cake, weak trading volumes hampered the company's brokerage business, which is consistent with what we've witnessed throughout the sector.

Now what: Just because I've utilized E*TRADE as my trading platform for 14 years doesn't mean I would dare put my money anywhere near this stock. E*TRADE's loan portfolio has shrunk by 70% since the credit crisis, but it's still littered with toxic assets that stand ready to provoke writedowns well into next year. With brokerage revenues failing to pick up the slack, no apparent catalyst exists that would send E*TRADE higher.

Craving more input? Start by adding E*TRADE Financial to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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