Etrade lost more than half its market value yesterday after the online brokerage issued a profit warning and a key industry analyst said that the company may go bankrupt.

The shares plunged by $5.04, or 58 per cent at the close, as the market digested a regulatory filing on Friday, which said that the broker would need to take “significant writedowns” this quarter relating to mortgage-backed securities and bad loans.

The shares were hit further by Prashant Bhatia, a Citigroup analyst, who put the chance of an Etrade bankruptcy at 15 per cent, arguing that poor management had “put the viability of the franchise at risk”.

Mr Bhatia was referring, in part, to Etrade’s decision to triple loans in the run-up to the housing slump, which has been accompanied by a jump in defaults on its lending. He said that the company’s brokerage unit was in danger of losing clients, who may be tempted to shift to rivals, while the $15 billion (£7.3 billion) that the group holds in deposits may erode as some of its 57,000 account-holders move elsewhere.

Deposits make up about 25 per cent of Etrade’s funding and if too many customers leave, it would be forced to sell assets into a declining market, pushing prices down even further, Mr Bhatia said.

Last month, Etrade reported its first quarterly loss in five years, of $58.5 million for the three months to October, compared to a $153 million profit the year before. It also cut its forecast for 2007 for the fourth time this year.

As its shares fell yesterday to their lowest level since April 2003, the online broker sought to reassure its investors by saying that it could absorb a writedown of as much as $1 billion and that it was well capitalised. Jarret Lilien, Etrade’s president and chief executive, acknowledged that banking industry losses would get worse before they got better and said that the group was taking “prudent measures” to manage its balance sheet.

Etrade has $450 million invested in so-called collatorised debt obligations — or pools of bonds with a high exposure to sub-prime mortages.

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