Earnings Preview: E-Trade Financial

OVERVIEW: Retail brokerage firm E-Trade reports its second-quarter financial results Tuesday, and analysts widely expect the company to have lost money during the three months ended June 30.

E-Trade has struggled during the first half of the year due to bad investments in mortgage securities and other risky debt. The company was forced to take write-downs earlier in the year and sell some assets at losses to reduce its exposure to the debt.

It has also had to set aside capital to cover mounting loan losses in mortgage portfolios, including residential loans. As consumers have increasingly defaulted on mortgages, financial firms have been forced to set aside more cash to cover the mounting losses.

The company has embarked on a turnaround plan to return to profitability and refocus its operations on its core retail brokerage business.

BY THE NUMBERS: Analysts polled by Thomson Financial, on average, forecast a loss of 14 cents per share for the quarter, on revenue of $332.5 million.

ANALYSTS' TAKE: Sandler O'Neill & Partners LP analyst Richard Repetto said E-Trade will have to increase its loan-loss provision for its investment portfolios. Repetto said the financial firm will have to set aside about $260 million for losses--more than the $234 million reserved during the first quarter.

Repetto previously forecast a provision of $150 million for the second quarter, but revised it higher based on results at other banks and financial firms and continued declines in the real estate market.

Repetto cut his second-quarter estimate to a loss of 11 cents per share from a loss of 8 cents per share because of the increased bad debt reserve.

WHAT'S AHEAD: Recently, E-Trade said it sold E-Trade Canada to Scotiabank for $442 million in cash. The sale was part of E-Trade's ongoing turnaround plan to help restore profitability.