E*Trade Shares Dive Nearly 60 Percent

E*Trade Financial Corp. shares dived nearly 60 percent Monday after the online U.S. brokerage warned of further write-downs on its mortgage-backed securities.

The discount brokerage service for self-directed investors also said the U.S. Securities and Exchange Commission was conducting an informal probe into matters related to the company’s loan and securities portfolios.

A CitiGroup Inc. analyst said the online brokerage could face bankruptcy.

E*Trade shares were down 57.86 percent, or $4.97, to $3.62 a share in mid-afternoon trading on the Nasdaq Stock Market. Shares fell earlier to $3.50.

The credit losses could fuel an exodus by depositors, forcing the company to sell assets, leading to $5 billion in losses and more than wiping out tangible equity, analyst Prashant Bhatia wrote in a client report.

He predicted a 15 percent chance of bankruptcy.

The online brokerage told customers in a Web site message that market conditions would likely get worse before they got better but that the firm remained well-capitalized.

As a matter of fact, we could absorb an immediate write-down in excess of $1 billion and still remain well-capitalized, President and Chief Operating Officer Jarrett Lilien said in the message.

He said E*Trade was taking prudent measures to shore up its balance sheet.