No Longer Seeing Green: E*Trade Financial in a Transitional Phase

E*Trade Financial, (NASDAQ: ETFC) a website that promises to take your investments to the next level, has come under quite a bit of pressure within the last few months to step up its game. The online broker fell 20 percent in January from a year earlier, which was actually, believe it or not, seen as an improvement. In December, E*Trade was down 40 percent from y-o-y prior, according to reuters.com.

“Rival brokerage TD Ameritrade said on Wednesday that its trading volume was down 17 percent in January from a year earlier at an average of 374,000 trades per day. That was up 18 percent from December,” reuters.com reported.

The disappointment E*Trade has been forced to deal with comes at a time of change and ambiguity for the company. While losing one of its longest-standing board members, Lewis Randall, the financial website gained Rodger Lawson and Rebecca Saeger as directors.

In a research report published earlier today,ISI revealed its decision to maintain its Hold rating on E*Trade (NASDAQ: ETFC) due to a recent management meeting that revealed the long-term outlook on the stock to be promising, but to remain cautious in 2012. ISI maintained that a promising story is building, but there are sure to be bumps in the road this year.

“[Management] discussed its strategy on driving EPS toward more normalized levels, by 1) reducing credit risk in home lending, 2) building excess capital, 3) continue growing the core brokerage franchise, and 4) managing toward roughly flat expenses as continued reduction in banking expenses would be reinvested in growing the brokerage,” ISI recounted in the report.

Beyond the new management's opinion, Reuters said that one of E*Trade's biggest shareholders, Hedge fund Citadel LLC, have noticeably lost faith in the company. After requesting a management shake-up that was ignored back in July, Citadel reduced its shares in E*Trade and no longer holds the number 1 shareholder spot.

As was stated in the ISI report, the success of E*Trade will take strategy and time to re-accomplish.

“Given the more prolonged credit loss recognition on home lending in accrual accounting vs. mark-to market, mgmt's strategy to further reduce credit risk via loan runoff and mitigation strategies should drive greater longer-term value in ETFC shares via an acquisition scenario, barring an aggressive bidder emerging,” ISI explained in the report. “That said, we think further loan loss provision reduction may be uneven and deployment of excess capital is likely a 2013-14 story. Moreover, further NIM pressure and fragile improvement in core brokerage metrics may also pressure the shares this year.”

Currently, E*Trade's y-o-y is down -48.91% and is trading at $9.17.