UPDATE: E*Trade 4th-Quarter Loss Widens on Debt-Extinguishment Costs

--E*Trade posts wider-than-expected loss on debt-refinancing costs

--Company's loan-loss provision falls

--New CEO's main priority is "ruthless execution" of the company's strategic plan

(Adds information on debt refinancing, mortgage portfolio, trading volume, cost-cutting program, and comments from CEO and CFO.)

By Brett Philbin

E*Trade Financial Corp.'s ( ETFC ) fourth-quarter loss widened sharply as the online brokerage reported heavy debt- extinguishment costs, though the company set aside less money for bad loans, said it has made progress in deleveraging its balance sheet and raised its cost-cutting program by $10 million.

The company's shares fell 2.8% to $9.98 in after hours-trading, as results missed analysts' estimates. The stock was up 43% over the past six months as of Thursday's close.

The somewhat messy quarter reflected the New York company's latest steps to emerge from mortgage-related losses that have plagued it since late 2007. During the period, E*Trade refinanced $1.3 billion of its high-cost debt, a process that led to a $257 million pretax charge, or 59 cents a share, and to the quarterly loss.

During a conference call with analysts, E*Trade Chief Financial Officer Matt Audette said the refinancing was a "major accomplishment and has been a priority for quite some time," adding that the so-called springing lien notes were issued at a time "when our bank needed capital, which was reflected in the high coupon."

Overall, E*Trade posted a loss of $186.1 million, or 65 cents a share, compared with a year-earlier loss of $6.3 million, or two cents a share. The latest period also included $38 million in expenses related mainly to a recent change to the California tax code and its impact on certain state deferred tax assets.

Net revenue slipped 1.5% to $467.7 million.

Analysts polled by Thomson Reuters most recently projected a loss of 54 cents a share on revenue of $477 million.

E*Trade said its loan-loss provision fell to $74 million, down 48% from $141 million in the prior quarter and down 40% from $123 million a year ago. The figure shows E*Trade's ability to recover from bad bets made on the U.S. housing market.

The company's loan portfolio shrank by $557 million during the quarter to $10.6 billion, down 20% from a year ago. The loan book is now down 68% from its peak more than five years ago.

On the call, Mr. Audette said E*Trade expects the portfolio to contract by $450 million per quarter through 2013, adding that it will be "consistent with the 4% to 5% quarterly decline we have experienced for quite some time."

E*Trade also increased its cost-cutting target, after offsetting expenses, to $100 million from $90 million. Mr. Audette said the cuts will be fully implemented by the end of 2013.

He said that $30 million of the savings will come from marketing, while the remainder will come from "compensation and professional services."

The conference call included some remarks from new E*Trade Chief Executive Paul Idzik, who was on his third day on the job. Last week, E*Trade announced Mr. Idzik's hiring, making him the company's seventh CEO, counting interim heads, since late 2007.

On the call, Mr. Idzik said his main priority would be "ruthless execution" of the company's strategic plan. Those efforts include deleveraging E*Trade's balance sheet, a process in which the company is targeting $8.5 billion in such actions.

E*Trade, like its online brokerage rivals Charles Schwab Corp. ( SCHW ) and TD Ameritrade Holding Corp. (AMTD), has been affected by soft trading volume as clients have largely moved to the sidelines amid continuing concerns about Europe's debt crisis, the "fiscal cliff" and the global economy.

The brokerage posted daily average revenue trades, or DARTs, a measure of trading volume, of 128,000, down 9% from a year earlier, and off 1% from the third quarter.

Mr. Audette said that so far in January trading activity is tracking up 17%, though he added it is "too early to tell if investors are truly returning to the market in a meaningful way."

Commenting on current business conditions, Mr. Idzik said E*Trade has a "great business model bouncing along in an unfavorable investment environment."

In one sign of growth, E*Trade added $2.3 billion in net new brokerage assets, up from $1.7 billion a year ago, though it trailed the results of many peers that have much larger asset-gathering operations.

-Debbie Cai contributed to this article.

Write to Brett Philbin at brett.philbin@dowjones.com

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