NEW YORK - E-Trade Financial Corp. posted a hefty loss for the fourth quarter on Thursday as the struggling discount brokerage dumped a book of risky investments at a steep discount.
In an illustration of how the mortgage industry crisis has spread to other types of companies, the New York-based brokerage in November said it sold a $3 billion portfolio of mortgage debt to Citadel Investment Group at a $2.2 billion loss.
Hampered by that sale, E-Trade lost $1.71 billion, or $3.98 per share, in the fourth quarter, after a profit of $176.7 million, or 40 cents per share, in the fourth quarter of 2006. Analysts surveyed by Thomson Financial forecast a smaller loss of $2.90 per share.
Triggered by a Citi Investment Research analyst's report in November mentioning the possibility of bankruptcy, Chief Executive R. Jarrett Lilien said in an interview the focus shifted during the fourth quarter from the company's core business to its investment portfolio.
E-Trade recorded almost $460 million in expected losses for 2008 on a $12 billion book of home-equity loans suffering from deteriorating credit quality. Lilien said the company expects losses of $1 billion to $1.5 billion overall on the portfolio.
The company also incurred a "goodwill" charge of more than $100 million, reflecting fundamental damage to the value of E-Trade's brand.
E-Trade's shares lost almost 60 percent of their value in November and earlier this year touched their cheapest trade in the history of the stock.
Stock market investors were not the only ones to take note of E-Trade's beleaguered balance sheet. Since the end of October, the money E-Trade's clients keep in their accounts has dwindled from $226.7 billion to $190 billion. Lilien said most of the exodus occurred in the two weeks after the Citi report.
"That drove a panic in the marketplace, and customers who had no reason to be concerned got concerned and moved their money away," he said.
Lilien, who was promoted from president to replace the deposed Mitchell H. Caplan in late November, said his goal as acting CEO is to burnish the company's balance sheet and return the market's attention to E-Trade's core business of brokering trades for 4.7 million clients, which remains healthy.
Clients in the fourth quarter executed an average of 214,066 trades a day, a 38 percent acceleration from trading volume in the fourth quarter of 2006.
"We are in a panicky time," he said. "People are wisely being careful with their money. We've addressed the real issue and now it's just a matter of doing what we do well."
E-Trade plans to dispose of any business lines or investments that do not support the company's services to the retail consumer, Lilien said.
The company, which until the hiccup in November was on track for record accounts and trades last year, plans to boost spending on advertising and technology, and invest more in international expansion.
E-Trade's revenue for the quarter was negative $2.01 billion — compared to revenue of $628.8 million in the year-earlier quarter — because of massive losses on the sale of debt.
Analysts expected revenue of negative $1.1 billion.
E-Trade lost $1.4 billion, or $3.40 cents per share, for the year in 2007, compared with profit of $628.9 million, or $1.49 per share, in 2006.
E-Trade's stock closed up 2 cents at $3.48 Thursday, having lost 85 percent of its value in the past six months.