E-Trade Financial Corp (ETFC) recorded a large loss in the quarter that ended June 30 after management decided to solicit buyers for its market-making unit.
The $45 billion-asset company said Wednesday that it lost $54 million in the second quarter, after earning $40 million in the same period in 2012. It took a $142 million goodwill impairment charge after reclassifying its market-making unit, G1X, as "held-for-sale," it said.
E-Trade decided to sell the unit "in light of the tightening economics of that business, coupled with potential associated risks," and "because it is not core to our business," Chief Financial Officer Matthew Audette said on the earnings conference call Wednesday. It acquired G1X in 2001.
Excluding the impairment charge, it earned $60 million, or 21 cents a share, 9 cents above the estimates of analysts polled by Bloomberg. E-Trade's stock surged following the announcement, rising more than 7%, to $14.60, on Thursday afternoon.
Net interest income fell 13%, to $242.5 million, as loans fell by 20%, to $9.8 billion. Commission income rose 14%, to $106.4 million, and fee and service charge income rose 39%, to $40.4 million.
E-Trade's operating expenses rose 47%, to $413.9 million; excluding the $142 million impairment charge, they fell 4%. The company said it has nearly completed a cost-reduction program that it expects to reduce annual costs by $95 million.