E*Trade Financial Corp's chief financial officer said on Wednesday that the deteriorating economic environment spurred by Europe's debt crisis was a key reason behind the No. 3 online brokerage's decision not to put itself up for sale after its recent strategic review.

The process ended earlier in November and was the second time in a year the firm considered putting itself on the block.

The review was initiated in August at the insistence of E*Trade's then-largest stakeholder, hedge fund Citadel Investment Group, which was unhappy with E*Trade's lagging share price.

The key thing to keep in mind during that time period was that the macro-economic environment back in August was much different that the environment that we find ourselves in today, E*Trade's Matthew Audette said at the KBW Securities Brokerage & Market Structure Conference in New York.

The primary cause of that is ... the financial meltdown that we're seeing in Europe, he said in his first comments since the review ended.

Audette said the strategic review considered a broad range of alternatives, from continuing on with its current strategy of de-leveraging and de-risking its bank unit, to the sale of bank unit, to the sale of the overall company.

Ultimately, E*Trade's board, which includes Citadel chief Ken Griffin, accepted adviser Goldman Sachs' view that the best way to maximize shareholder value was to carry on business as usual, not to sell to a rival brokerage or a bank.

Working through credit issues and working through the interest rate environment can certainly have a meaningful impact on earnings and, hopefully, on the valuation of the company, Audette said.

Rival brokerages Charles Schwab Corp and TD Ameritrade were seen as potential suitors for E*Trade, but both expressed concerns over risky assets in the firm's loan portfolio.

The profit-sapping record low interest rate environment and lingering concerns over the U.S. housing market added to doubts that a sale would happen.

Those factors also contributed to declines in the share prices of all the e-brokers, but E*Trade, down around 43 percent year to date, has had the steepest fall.

E*Trade's troubles began in 2007 when the housing market collapsed, slamming its banking unit's loan portfolio, which had high exposure to risky mortgages. Citadel stepped in 2007 to rescue the firm with a $2.5 billion cash infusion.

E*Trade has been steadily chipping away at its legacy loan portfolio. It is now down to $14 billion, compared to $32 billion in 2007, and quarterly loan loss provisions have dropped to under $100 million, versus around $520 million in the third quarter of 2008.

As that portfolio runs down to zero, the provision will run down to zero, Audette said. It's a meaningful improvement to the earnings in the future.

This year the firm, which has about $176 billion in client assets, will report its first annual profit since 2006.

Audette also said now that the strategic review process is over, the firm would resume its search for a new chairman to replace interim chairman Steven Freiberg, who is also E*Trade's chief executive.

Freiberg stepped into the role after former chairman Robert Druskin stepped down following his appointment as chairman of the Depository Trust & Clearing Corp in April.

(Reporting by John McCrank in New York. Editing by Richard Satran)

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