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E*Trade Swings to 3rd-Quarter Profit, Strikes Deal to Sell Market-Making Unit

E*Trade Financial Corp. (NASDAQ: ETFC) swung to a third-quarter profit as the online brokerage firm reported higher daily average revenue trades, sharply lower loan-loss provisions and more controlled expenses. However revenue missed the estimates of analysts polled by Thomson Reuters. E*Trade also disclosed that it will sell its G1 Execution Services market-making unit to Susquehanna International Group, LLP for $75 million. The unit handles the stock orders of individual investors that come in through the discount brokerage's online portal, as well as orders from other online brokers. E*Trade had been aiming to hammer out a deal to sell G1 amid regulatory scrutiny of its order routing practices. Under the deal with Susquehanna--expected to close in three to six months--E*Trade will route 70% of its customer equity order flow to G1 over the next five years. Chief Executive Paul Idzik in a prepared statement said the deal will allow E*Trade "to concentrate our time and attention on the core business and our customers." E*Trade reported a profit of $47.4 million, or 16 cents a share, compared with a year-earlier loss of $28.6 million, or 10 cents a share. Revenue plunged 15% to $416.8 million as the brokerage reported an 85% drop in gains on loan and securities. Analysts polled by Thomson Reuters most recently projected earnings of 16 cents on revenue excluding loan loss provisions of $419 million. On the trading front, E*Trade posted daily average revenue trades of 145,000 up 13% from a year earlier, but down 3% from the second quarter. Commissions, fees and service charges, principal transactions, and other revenue in the third quarter were $164 million, compared with $177 million in the prior quarter and $153 million in the third quarter of 2012. Average commission per trade for the quarter was $11.15, compared with $11.10 in the prior quarter, and $11.24 in the year-earlier quarter. In the latest quarter loan-loss provisions were down sharply to $37.4 million from $141 million a year earlier. The year-earlier period included $50 million related to loan charge-offs associated with newly identified bankruptcy filings. Meanwhile net charge-offs of $29 million were at the lowest level since early 2007 for E*Trade. The brokerage also showed progress on tightening expenses. Operating expenses fell 6.3%, driven by declines in compensation among other items. E*Trade also reported that its corporate cash ended the period at $373 million, an increase of $122 million from the prior period, driven primarily by a $100 million dividend distributed from the bank to the parent company during the quarter. The brokerage firm in September said it had received regulatory approval to stream $100 million from its bank to the parent company, while also disclosing plans to seek approval for future distributions of $100 million per quarter.

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