Citadel To Sell 170mm E*TRADE Shares; ETFC, SCHW

| 28 April 2010

E*TRADE Corporation (ETFC) announced this afternoon that its largest shareholder, Citadel, plans to unload 170 million shares of common stock it owns in the company. The sellers are Citadel Equity Fund and Wingate Capital, both affiliates of hedge fund giant Citadel Investment Group.

Citadel essentially bailed out E*TRADE with a huge investment back in 2007, buying a 20% stake in the company for $2.5 billion. E*TRADE made big bets on the banking and mortgage businesses which, since mid- to late-2007, have nearly wrecked the company and led to 10 consecutive quarters of quarterly losses.

It seemed like a good deal at the time; E*TRADE shares were trading down just over 80% from their peak just months earlier. Shares were stable at around $24 for the first six months of the year. Unfortunately shares in E*TRADE went on to lose another 70 percent and the firm needed yet another rescue.

The company successfully raised another $500 million, which we reported here. Citadel added another $100 million in E*TRADE equity to its already stuffed portfolio. Citadel originally announced plans to cut their losses in August but they subsequently changed those plans.

Shares in the firm are trading down about 6%in after-hours trading to $1.72. This pegs the value of those 170 million shares for Citadel at around $292 million, if the price holds steady. The real question is whether they can find $292 million in the markets willing to suck up E*TRADE's consistent quarterly losses. E*TRADE recently raised $147 million in a public offering after the Office of Thrift Supervision told the firm it needed to shore up its balance sheet.

UPDATE: The shares were priced at $1.75 on Thursday, April 29.

The shares represent 8.6% of E*TRADE's outstanding shares. The firm's next largest shareholder is TIAA-CREFF with a 4.7% stake. BofA Merrill Lynch, Sandler O’Neill & Partners, L.P. and Citadel Securities LLC are the joint book-running managers of this secondary offering. To be clear, E*TRADE will not receive any proceeds from the offering.

In related news, The Charles Schwab Corporation (SCHW) announced plans recently to raise $480 million in a common stock offering in order to invest in their burgeoning banking business.

Tags: E*TRADE Financials

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Citadel To Sell 170mm E*TRADE Shares; ETFC, SCHW

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