E*Trade pressured to raise capital; reports loss

By Jonathan Spicer

NEW YORK (Reuters) - E*Trade Financial Corp, (ETFC.O) a U.S. retail brokerage, said it is facing regulatory pressure to boost capital as it posted its seventh straight quarterly loss, and its shares fell 25 percent in after-hours trade.

The online brokerage, which has suffered significant credit losses in its mortgage lending business, said the Office of Thrift Supervision told the company to "quickly" raise new capital for its bank and reduce the leverage of its holding company.

The company said it may raise capital from public markets, private investors, or both, which would end up creating "significant dilution" for shareholders. Any dilution would be a negative for hedge fund Citadel, its largest debt and equity holder.

E-Trade shares dropped to $1.84 when the company reported results. It closed on the Nasdaq at $2.46.

The retail brokerage is still waiting to hear from the U.S. government on its six-month-old application for $800 million in relief funds under the Troubled Asset Relief Program, or TARP.

Donald Layton, who became CEO just over a year ago, said in an interview E*Trade's TARP application is "still active," adding, "the delay was unexpected."

More than 500 U.S. banks have already received funds under that program. It is unusual for the government to ask a TARP applicant to raise capital without offering relief.

"It looks like regulators are pushing them," said Richard Repetto, analyst at Sandler O'Neill. Barclays Capital analyst Roger Freeman said the company appeared to be in "a really tough spot."