E*TRADE Financial Corp. will abandon broker originations as it takes massive mortgage-related charges.
The decision is part of the New York-based company's move out of non-core businesses, according to an announcement today.
"The company is exiting or restructuring non-core businesses that lack a direct and strategic connection with its retail customers," the statement said. "The company will exit its wholesale mortgage operations and will streamline its direct mortgage lending business to focus on its retail franchise."
The move, as well as other restructuring activities, will result in an estimated fourth quarter charge of $32 million.
"Given the significant deterioration in the mortgage market in August and particularly the pace of change in the performance of home equity loans in August, the company expects charge-offs of $95 million dollars and total provision expense of $245 million in the second half of 2007," the statement said.
A $100 million securities impairment charge included in the provision relates to deteriorating performance of second mortgages and collateralized debt obligations backing asset-backed securities.
Most of the expense is expected to occur in the third quarter.
E*TRADE explained that it expects to take a second half charge on 75 percent of all non-performing loans, while a 100 percent charge is expected on all non-performing home equity loans -- "where the company and the marketplace have seen the most significant stress."
E*TRADE said any balance sheet growth will be driven by deposit growth. During the next 24 months, balances on assets, including home equity loans, will be reduced and replaced with margin debt and prime first mortgages.
"Today's announcement addresses the recent shifts in the global financial markets," E*TRADE Chief Executive Officer Mitchell H. Caplan said in the statement.