E*Trade Financial (NYSE:ETFC) is set to make several changes as a part of its broad restructuring plan. The brokerage announced that it will close its institutional trading business and sell its $3 billion asset-backed security portfolio. E*Trade also appointed a former Wachovia official and mortgage industry veteran Robert Burton as chief operating officer of its banking segment. Shareholders are hoping that these and other changes will help change the fortunes in the troubled brokerage.

E*Trade’s restructuring plan is focused on further reducing balance sheet risk and leverage in order to weather the storm and stay alive. These efforts included a sale of some $3 billion in securities, including a combination of mortgage-backed securities and muni bonds. The sales resulted in a realized loss of less than $5 million and should be settled by February. Meanwhile, the brokerage also announced that it would reduce its wholesale borrowing levels by cutting about $3.5 billion in Federal Home Loan Bank advances and repurchase agreements in this quarter.

E*Trade also announced that it saw “turnaround momentum” in its customer behavior as it added around 87,000 gross new accounts in December, ending the year with $190 billion and $33 billion in cash. The brokerage unit is also forming a special committee in order to explore ways to reduce the risk of its real estate portfolio after recently selling of a $3 billion portfolio of securities for $800 million. The company plans to provide additional details on its restructuring plan on January 24th.

In the end, this is all good news for ETFC shareholders who have been experiencing a tough time recently. These efforts should result in a significant reduction in risk along with more customer accounts and revenues. If successful, these measures could prove to be enough to help E*Trade recover to its previous price levels. Combined, these factors make ETFC a stock worth watching!

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KB Home (NYSE:KBH) shares dropped sharply today after the homebuilder posted a $772.7 million net loss for the fourth quarter – nine times wider than the loss that analysts expected. In reality, much of the loss was due to a $514 million non-cash charge due to changed accounting for tax purposes. However, many remain convinced that there is much more pain to come in the housing market.

Slow business has led many analysts to speculate that homebuilders will not be profitable until 2009 or 2010 and may face even more write-downs. Notably, deferred tax assets will eventually recover and produce a gain but it could be awhile. Meanwhile, average housing prices dropped 12% in the fourth quarter to $247,800 while supply remains extremely high. Also, more buyers are cancelling their contracts for homes than analysts expected.

The mortgage market isn’t looking any better either. Countrywide (NYSE:CFC) shares were also off sharply yesterday amid speculation that there was a forthcoming negative announcement that many assumed to be a bankruptcy. The mortgage company denied the rumors, but that didn’t stop shares from dropping nearly 30 percent amid falling housing prices and a surge in foreclosures.

Mortgage lenders are still faced with subprime exposure and an increasing number of foreclosures. Additionally, many prime loans granted to the rich may also face defaults as many were financed with adjustable rate mortgages with teaser rates that are due to reset higher over the next months and year. New government lending standards should prove to curb problems in the future, but there is still a lot of work ahead of the mortgage lending industry.

In the end, the housing market still faces an uphill battle due to an increasing supply of homes and an increasing number of buyers defaulting. It could be awhile before this problem turns itself around…

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Unisys Corporation (NYSE:UIS) shares fell sharply today after a large investor urged the company to immediately hire an investment banker and review all available strategic alternatives. The news comes after shares in the technology company hit a new 52-week low as Wall Street continues to push the company down despite several new contracts. Shareholders are hoping that this will change, however, with the involvement of activist hedge funds.

MMI Investments, which owns 9.9% of the company, sent a letter to the board arguing that its restructuring benefits were not enough to correct Unisys’ dramatic undervaluation. The activist hedge fund believes that the undervaluation is due to flaws in the company’s strategic configuration.

“[We] felt tremendous frustration with the seemingly continuous stream of management, operational and financial missteps that have characterized recent performance, obscuring otherwise impressive growth in EBITDA as a result of the restructuring and undermining the significant intrinsic value of Unisys’ U.S. Government business,” said MMI Manager Clay Lifflander. “Moreover we are mystified by management and the board’s inaction in the face of Unisys’ ruinous stock price performance over the past year.”

MMI insists that the best option would be a sale or spin-off of its U.S. government business unit. The move would, according to the hedge fund, allow for the highest multiple of the business to have its value recognized, raise equity capital for the company at an attractive price, and provide employees of that unit with financial incentives as owners.

Unisys announced today that they received the letter and would evaluate it; however, they were quick to note that they were already in the middle of refocusing their business, cutting costs, and getting rid of assets that are not central to their operations.

“Unisys is executing a major, multiyear repositioning plan and has made significant progress in enhancing its profitability by refocusing our business, reducing costs, and divesting noncore assets,” a Unisys spokesman said yesterday.

In the end, this is all good news for shareholders. Whether or not the company will take any action on these proposals remains to be seen, but any sale or spin-off could prove to be a windfall for troubled Unisys shareholders. Combined, these factors make UIS a stock worth watching!

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