E*TRADE FINANCIAL Corporation Announces Second Quarter Results and Progress of 2008 Turnaround Plan

E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its second quarter ended June 30, 2008, reporting a net loss of $94.6 million, or $0.19 per share, compared to a net loss of $91.2 million, or $0.20 per share, in the prior quarter and net income of $159.1 million, or $0.37 per share a year ago.

• Total Retail Customers increased 22,000 from the prior quarter, up 90,000 from the previous year.
• Total Accounts increased 30,000 for the quarter and 196,000 from the previous year.
• Target segment accounts increased 14,000 versus the prior quarter, up 4,000 from the previous year.
• Total DARTs declined 5 percent quarter over quarter, but increased 7 percent over the year ago period.

“Our retail franchise is performing well and delivering strong, competitive customer results despite a challenging macroeconomic environment,” said Donald H. Layton, Chairman and Chief Executive Officer, E*TRADE FINANCIAL Corporation. “In the quarter we had positive asset flows, attracted new customers and increased our most profitable target segment accounts amid considerable market turbulence. This is truly a testament to the strength and appeal of the E*TRADE franchise.”

The Company continued to make progress during the second quarter reducing risk and strengthening its balance sheet, reducing total assets by $1.4 billion. In addition, undrawn home equity lines have been reduced from over $7 billion last year to approximately $3.7 billion as of the end of June.

During the second quarter, the economy, financial markets and housing markets all experienced very negative trends, generally performing worse than expected or predicted. The Company was moderately impacted by these events. “While losses in our credit portfolio are somewhat higher than expected, they are still manageable in accordance with our previously-announced Turnaround Plan and our capital base remains strong, as may be seen by the continuing substantial level of excess risk based capital in our bank subsidiary,” said Mr. Layton.

Loan delinquency growth, despite the difficult environment, continued to moderate. “While economic conditions are still challenging, we consider loan delinquency trends to be encouraging,” continued Mr. Layton. Total delinquencies increased by 9 percent or $111 million during the quarter, representing the slowest increase in four quarters. Home equity loan delinquencies increased by 4 percent or $25 million during the quarter, down from an increase of 8 percent in the prior quarter.

Provision for loan losses increased by $85 million quarter over quarter, driven primarily by an increase in home equity-related charge-offs. Total allowance for loan losses increased to $636 million, as provision exceeded charge-offs by $70 million during the quarter. The Company increased its allowance for loan losses across all three categories of its loan portfolio.

As previously disclosed, the Company has a long-standing investment in preferred equity of Fannie Mae and Freddie Mac. As of June 30, 2008, these positions had a market value of $330 million. Subsequent to the close of the second quarter, these securities experienced record price declines and volatility. Based upon concerns about continuing market instability and potential government-led plans that could materially further impact the value of the securities, the majority of them were liquidated during July with a resulting pre-tax loss of $83 million, which is net of hedges and will be reflected in the Company’s third quarter results. As of Monday, July 21, 2008, the remaining position, approximately $150 million, had a third-quarter-to-date market-value loss of approximately $40 million. The Company’s strong bias is to continue to reduce this remaining exposure, as ownership of such securities is no longer in line with the Company’s strategic objectives.

At the end of the second quarter, excess risk-based Bank capital totaled approximately $620 million. The Company expects to have such excess capital at the Bank of approximately $700 - $800 million by year-end.

In accordance with the Turnaround Plan, previously announced non-core asset sales are expected to generate over $700 million in net proceeds, including $660 million expected to close in the third quarter, surpassing management’s previously stated goal of $500 million. This includes the sale of the Company’s equity stake in IL&FS Investsmart as well as the sale of E*TRADE Canada. Proceeds from these transactions will strengthen the Company’s cash position, and may also be down streamed to the Bank as additional regulatory capital or used opportunistically to reduce existing corporate debt.

The Company continued to effect debt-for-equity exchanges, extinguishing $96 million in debt in the second quarter and $121 million since the beginning of the year. These exchanges represent $9 million in annualized coupon savings and continue to serve as a shareholder friendly way to reduce the overhang of debt at the holding company.

“While the current economic environment may impede our expectations to return to profitability from continuing operations this year, we are executing well on our Turnaround Plan and continue to make progress toward returning to profitability,” stated Mr. Layton.

The Company's second quarter and six month results include a $24.1 million non-cash tax benefit in discontinued operations relating to the expected sale of its Canadian operations, resulting from the difference between the tax and financial reporting bases of the Company's Canadian operations. Generally accepted accounting principles call for the recognition of the tax effects of basis differences once a commitment is in place to sell a subsidiary and the subsidiary’s results are presented as a “discontinued operation.” The second quarter tax benefit is intended to equalize the tax and reporting bases in the Company’s Canadian operations as of June 30, 2008.

Historical monthly metrics from June 2004 to June 2008 can be found on the E*TRADE FINANCIAL Investor Relations site at https://investor.etrade.com.

The Company will host a conference call to discuss the results beginning at 5:00 p.m. (EDT) today. This conference call will be available to domestic participants by dialing 800-683-1525 and 973-872-3197 or 404-665-9585 for international participants. The conference ID number is 54304105. A live audio webcast and replay of this conference call will also be accessible at https://investor.etrade.com.

About E*TRADE FINANCIAL

The E*TRADE FINANCIAL family of companies provides financial services including trading, investing and banking for retail and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC). Bank products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries.

Important Notice

E*TRADE FINANCIAL, E*TRADE and the E*TRADE logo are trademarks or registered trademarks of E*TRADE FINANCIAL Corporation. The statements contained in this news release that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include, but are not limited to, changes in market activity, anticipated increases in the rate of new customer acquisition, the conversion of new visitors to the site to customers, the activity of customers and assets held at the institution, seasonality, macro trends of the economy in general and the residential real estate market, instability in the consumer credit markets and credit trends, rising mortgage interest rates, tighter mortgage lending guidelines across the industry, increased mortgage loan delinquency and default rates, portfolio growth, portfolio seasoning and resolution through collections, sales or charge-offs, the development and enhancement of products and services, competitive pressures (including price competition), system failures, economic and political conditions, changes in consumer behavior and the introduction of competing products having technological and/or other advantages. Further information about these risks and uncertainties can be found in the information included in the annual reports previously filed by E*TRADE FINANCIAL Corporation with the SEC on Form 10-K (including information under the caption "Risk Factors") and quarterly reports on Form 10-Q.

© 2008 E*TRADE FINANCIAL Corporation. All rights reserved.

Financial Statements

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statement of Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
					Three Months Ended								Six Months Ended
					June 30,								June 30,
						2008				2007				2008				2007
Revenue:
	Operating interest income				$	626,074			$	894,451			$	1,325,665			$	1,715,385
	Operating interest expense					(283,310	)			(486,719	)			(656,530	)			(922,157	)
	Net operating interest income					342,764				407,732				669,135				793,228
	Commission					122,235				162,682				244,490				314,486
	Fees and service charges					50,962				59,379				105,903				113,434
	Principal transactions					18,392				27,377				38,882				57,009
	Gain (loss) on loans and securities, net					(15,707	)			636				(24,274	)			12,234
	Other revenue					13,691				11,050				27,295				20,648
	Total non-interest income					189,573				261,124				392,296				517,811
	Total net revenue					532,337				668,856				1,061,431				1,311,039
Provision for loan losses						319,121				30,045				552,992				51,231
Operating expenses:
	Compensation and benefits					96,082				110,652				219,210				225,384
	Clearing and servicing					46,122				70,093				91,007				133,640
	Advertising and market development					42,737				32,897				100,185				74,941
	Communications					24,500				23,655				49,594				47,674
	Professional services					25,749				22,589				49,394				45,651
	Depreciation and amortization					20,385				19,566				42,038				38,427
	Occupancy and equipment					21,698				20,791				42,196				42,226
	Amortization of other intangibles					9,135				10,187				20,045				20,455
	Facility restructuring and other exit activities					12,433				(2,114	)			22,999				(1,922	)
	Other					19,702				71,506				36,208				102,110
	Total operating expenses					318,543				379,822				672,876				728,586
Income (loss) before other income (expense), income    taxes and discontinued operations						(105,327	)			258,989				(164,437	)			531,222
Other income (expense):
	Corporate interest income					1,806				1,001				4,232				2,706
	Corporate interest expense					(90,249	)			(37,866	)			(185,490