E*Trade (ETFC) had a bad quarter, in large part due to provisions for loan losses of $319 million. The company posted a net loss for the quarter of $119 million against a profit of $158 million in the same quarter last year.

E*Trade did have $535 million in revenue. That was down from $669 million last year, but there are a number of signs that the firm’s discount brokerage operation is in good shape.

The broker unit’s retail customers increased 22,000 from the prior quarter,  and were up 90,000 from the previous year. And, assets per customer rose 17% to $52,172.

At $634 million in revenue E*Trade rival TDAmeritrade (AMTD) is not much larger. It is substantially more profitable, having brought n $204 million in net income last quarter.

The huge difference between the two companies is that AMTD has a market cap of $11.2 billion compared to ETFC’s of $1.4 billion.

A potential buyer of  E*Trade would to be convinced that the bad assets on the broker’s balance sheet would put them into a hole big enough to kill $10 billion in value.

E*Trade still has a profitable discount brokerage business. Less than a week ago, the stock traded at $4. It is now down close to $3.

Is the company worth $4 or $5 a shares to Schwab (SCHW) or AMTD? Either of the brokers could take out large amounts of duplicated costs, and spin off the bad assets.

If E*Trade’s stock stays at $3, it is going to be sold.

Douglas A. McIntyre

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