An Update on E*Trade

Last November, E*Trade Financial Corp., the parent company of E*Trade Bank, applied for a capital infusion through the Treasury Department's Troubled Asset Relief Program. The application has not yet been approved or denied.  But in a 10-Q report that the company filed last week, E*Trade said that it's moving its business forward, regardless of whether it receives government aid.

The filing said:  "We continue to view TARP funding as a possible component of our capital planning program. We cannot predict when or if our application will be acted upon. However, given the success of our capital raising efforts to date, we believe that our financial health is not dependent upon receiving TARP funding."

A few months ago, the Office of Thrift Supervision told E*Trade to raise its equity levels and reduce its debt.  The company agreed to do so, and reported that it raised $586 million from two stock offerings in the second quarter.  It also started the process to convert $1.7 billion of its corporate debt to non-interest bearing convertible debentures It  increased its excess risk-based capital by nearly $200 million and its corporate cash by more than $92 million.

The company reported on July 1 that "approximately $1.3 billion and $429.6 million of the 12 1/2% Notes and 8% Notes, respectively, had been irrevocably tendered and accepted for exchange," adding that it still needed both shareholder and regulatory approval for the exchange.  This press release said that the OTS gave its approval for the exchange offer last Friday.

Of course, the fact remains that E*Trade had a second quarter loss of $375.9, which the company claims "was due principally to our provision for loan losses of... $858.5 million...."  Those loan losses exceeded by far the "strong performance" of the company's trading and investing segment, which earned segment income of $300.2 million in the first half of 2009.

Yet E*Trade's filing ends on an optimistic note.  It said: "Management believes that our common stock offerings combined with the expected completion of the pending debt exchange offer, will substantially improve the regulatory capital levels at E*TRADE Bank as well as significantly enhance parent company liquidity, especially through the end of 2011."