E*TRADE (Nasdaq: ETFC) hasn't turned the corner of profitability, but it's definitely starting to make its way around the bend.

The online broker posted a quarterly deficit of $0.02 a share last night, substantially better than last year's $0.41-per-share loss. Analysts were expecting $0.03 a share in red ink, while rivals TD AMERITRADE (Nasdaq: AMTD) and Charles Scwhab (Nasdaq: SCHW) finished worse than Wall Street's first-quarter estimates in recent days. Yes, TD AMERITRADE and Schwab are consistently profitable, but at least E*TRADE bucked the trend of disappointment this time.

Daily average revenue trades of 155,000 are down 2% from last quarter and 11% from the same quarter a year earlier, but most of the other metrics are encouraging. Accounts, client assets, and margin receivables are all on the rise.

"E*TRADE's first-quarter results show improving trends and reflect continued progress toward our goal of returning to profitability," new CEO Steven Freiberg notes in yesterday's earnings report.

He's not patting his own back here, since the former Citigroup exec didn't assume his new position until after the quarter ended.

His timing is pretty good, though. Even E*TRADE's banking arm that dragged the broker into the nasty tangles of the subprime meltdown is seeing better days. It generated positive risk-based capital for the first time in nearly two years.

E*TRADE's turnaround is likely to heat up the acquisition chatter, even if Freiberg's best move is to run the discounter as if he's going to be there for the long haul.

The broker will be asking its shareholders to approve a reverse split in a move to woo more investors than speculators. The negative attitude toward reverse splits is changing now that AIG (NYSE: AIG), Coeur d'Alene Mines (NYSE: CDE), and Biglari Holdings (NYSE: BH) have all moved higher after executing their own reverses last year.

So what will it be for E*TRADE? Will its organic turnaround fuel juicy gains, or will the siren calls of sector consolidation swallow it whole at a reasonable premium? Either way, it seems as if Freiberg -- and E*TRADE shareholders -- are in a win-win situation.

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