E*Trade steps up turnaround effort

Online brokerage sells $3 billion in mortgage-backed investments, exits institutional trading business after shares hit all-time low.

Troubled discount brokerage E-Trade Financial Corp. said Wednesday it sold about $3 billion of mortgage-backed securities and municipal bonds in addition to the November sale of its $3 billion asset-backed securities portfolio.

The sale is part of a restructuring plan to reduce risk to E-Trade's balance sheet and maintain capital levels, R. Jarrett Lilien, the company's acting chief executive and president, said in a statement.

Like many other financial institutions, E-Trade has struggled with the rapid deterioration in the mortgage and credit markets. In November, the brokerage firm disclosed it would take a writedown on a portfolio of bonds and debt backed by mortgages. Mortgages have increasingly defaulted in recent months, leading banks and other financial institutions to cut the value of their holdings.

E-Trade shares dropped 58 percent the day after the initial writedown announcement in November, but have been steadily declining since July. The stock hit an all-time low Tuesday, but was up more than 10 percent in premarket trading Wednesday.

The latest sale of mortgage-backed securities and municipal bonds will result in a loss of less than $5 million.

E-Trade also said it will exit its institutional trading business, impacting about 30 employees. The company in September said it would terminate its international institutional business based on poor financial performance.

Updating the company's turnaround plan, E-Trade said its home equity loan portfolio ended the year with under $12 billion in balances, and the company also reduced wholesale borrowing levels by about $3.5 billion.

The reduced borrowing levels comes as E-Trade eliminated advances and repurchase agreements with the Federal Home Loan Bank.

E-Trade said total client assets ended the year at $190 billion, a 16 percent decline from the $226 billion in assets held just two months earlier.

E-Trade plans to announce the full details of its restructuring plan when it announces fourth-quarter earnings results Jan. 24.