E-Trade, TD Ameritrade report customers kept trading in 1Q

E-Trade Financial Corp. may have reported a loss while TD Ameritrade Holding Corp. showed a profit, but the results tell the same story: The discount brokerage industry remained healthy in the first quarter.

TD Ameritrade on Thursday reported a profit of $186.7 million for the January-March period, a 32 percent leap from the first quarter last year. At 31 cents per share, profit matched analysts' expectations, according to a Thomson Financial survey. The company affirmed its profit target for the year, predicting earnings per share of $1.32.

Like its rival E-Trade, TD Ameritrade runs a discount brokerage enabling retail customers to trade stocks and establish investment accounts.

Clients entrusted an additional $7 billion to the Omaha, Neb.-based company during the quarter, bringing clients' assets to $306 billion. Trading volume surged 23 percent to an average of 312,000 trades a day on average, fueling higher revenue from commissions. And that helped revenue climb 19 percent to $622.9 million.

E-Trade's bottom line did not fare as well in the first quarter, though the online brokerage is in the midst of a major turnaround since teetering on the verge of bankruptcy just months ago.

Massive losses in the company's real estate business caused panic on Wall Street, decimating its stock price amid a $1.7 billion loss during the fourth quarter. This time around, mortgage-related businesses almost stopped their hemorrhaging while the company attempts to revamp itself.

The New York-based company posted a loss of $91.2 million, or 20 cents per share. That was double the loss analysts expected. However, E-Trade's travails are a symptom of the company's balance sheet, not its core business of executing trades and managing investments for customers. Losses amid the global credit crisis, and reorganization costs, took $35 million _ or 5 cents a share _ off the latest quarter's results.

But, more importantly, Chief Executive Donald Layton said the three-year cumulative losses on the company's troubled mortgage portfolio was unchanged from the last time E-Trade briefed Wall Street. The brokerage held those losses to a range of $1 billion to $1.5 billion, despite the ongoing slump in the housing market.

"That's quite an accomplishment," Layton told The Associated Press.

Major global banks and brokerages _ from Washington Mutual Inc. to Merrill Lynch Corp. _ have taken more than $200 billion of write-downs from losses linked to the credit crisis.

Investors seemed to be content that E-Trade has a better handle on its financial situation. Its shares rose 28 cents, or 7.7 percent, in after-hours trading after gaining 29 cents to $3.62 in the regular session _ a big jump considering the company's stock has surrendered three-fourths of its value in the past six months.

E-Trade said it set aside $234 million to cover bad mortgage loans in the first quarter, pushing total revenue down to $316.2 million from $645 million last year.

The company's ill-timed foray into mortgage investing has masked the core strength of E-Trade's underlying business. E-Trade added 62,000 accounts in the first three months of the year, bringing the total to 4.8 million. Trading volume jumped 12 percent to 190,724 trades a day on average.

Further, these metrics do not tell the whole story because many customers have taken their business to TD Ameritrade after reading E-Trade's bad news and one analyst's comments that E-Trade could go bankrupt.

"We're seeing customer metrics, new accounts and business heading in the right direction," Layton said, adding that the company plans to raise more capital and erase debt during the coming quarters. Much of that strategy, he said, will be by selling nonessential businesses, slimming down the company's debt levels, and refocusing on its retail banking and brokerage operations.

E-Trade has spend the past few months jettisoning risky debt from its balance sheet, which shrank by about $3.5 billion during the quarter. At the same time it has also boosted the amount of excess capital it has to protect against future losses, this quarter increasing it by $260 million to $695 million.

Many analysts expect the bump discount brokers have enjoyed from volatile markets will not last. If the U.S. economy enters into a recession _ which E-Trade said has already happened _ the pressure on the retail investor will overwhelm the boost from market turbulence.

Friedman Billings Ramsey analyst Matt Snowling wrote in a client note it will be tough for TD Ameritrade to keep up its strong earnings. Though asset growth in the first quarter was encouraging, Snowling said people are going to start trading less in the coming months as volatility wanes.

Ameritrade shares fell 8 cents to $17.50 in regular trading Thursday, then gained 31 cents in extended electronic trading.

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AP Business Writers Joe Bel Bruno in New York and Josh Funk in Omaha contributed to this report.