--E*Trade to close its U.K. brokerage business
--Customers given the option to transfer accounts to another institution or liquidate their positions
--The amount of trades generated by the business were "miniscule as a percentage of E*Trade's total trades or revenue," analyst says
(Adds analyst comments and background on trading volume in the sixth through eighth paragraphs, background on mortgage portfolio in the 12th paragraph, and updates stock price.)
By Brett Philbin
E*Trade Financial Corp. (ETFC) has told clients it will close its U.K. brokerage business as the company sharpens its focus on its core U.S. operations, according to people familiar with the situation.
Customers of the unit, E*Trade Securities Ltd., were recently notified of the planned shutdown and were given the option to transfer their accounts to another financial institution or to liquidate their positions, one of these people said.
The move, which is expected to take several months, follows similar steps taken by rivals Charles Schwab Corp. (SCHW) and TD Ameritrade Holding Corp. (AMTD) in the region. Last month, Schwab told clients it would shutter its optionsXpress Europe business, while TD Ameritrade has told some of its European customers their accounts will be closed.
Over the past year, clients in European countries, and elsewhere, have reined in their trading activity amid concerns about the sovereign debt crisis and the global economy.
While the majority of E*Trade's customers are in the U.S., the company has an office in the U.K., where it allowed clients access to trade in U.S. securities. The company, which has 2.9 million brokerage accounts, doesn't disclose how many clients are in the region and a spokesman declined to comment on the size of the business.
Sandler O'Neill + Partners analyst Richard Repetto said he believed the amount of trades generated by that business were "miniscule as a percentage of E*Trade's total trades or revenue."
Mr. Repetto said E*Trade, though, could save money by closing that unit, noting that basically "no one is trading in Europe," referring to weak volumes there.
Last month, E*Trade said its daily average revenue trades, or DARTs, a measure of trading volume, in the third quarter fell to 129,000, down 22% from a year earlier, and off 7.2% from the second quarter. For October alone, the company on Wednesday said its DARTs fell 21% from a year ago and about 10% month-to-month.
For E*Trade, the U.K. closure is the latest in a series of decisions to pare back its international presence as the company struggles to recover from bad bets made on the U.S. housing market. E*Trade was hurt by heavy losses in its mortgage business, which led to two separate rescues by hedge fund giant Citadel LLC, its largest shareholder. Citadel, led by Kenneth Griffin, helped shore up the brokerage's capital position.
E*Trade has already jettisoned trading operations in Germany and the Nordic region and sold its Canadian subsidiary to Scotiabank for $442 million in cash in July 2008.
The company recently unveiled a strategy aimed at strengthening its core brokerage business and de-emphasizing its banking products. To that end, E*Trade executives recently doubled their cost-savings goal to $100 million by the end of next year. The company plans to deleverage and shrink its balance sheet.
In the third quarter, the company's troubled mortgage portfolio contracted by 19% from a year ago to $11.1 billion, and 5% from the second quarter.
E*Trade is also in the midst of a search for a new chief executive after it ousted its former head, Steven Freiberg, in August, two years into his four-year contract. Chairman Frank Petrilli has served as interim CEO over the past three months.
Shares of E*Trade recently traded down 1.3% at $7.76. The stock has fallen 1.9% year-to-date.
Write to Brett Philbin at firstname.lastname@example.org
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