E*Trade (ETFC) appears to have taken its medicine and saved itself. A $2.3 billion cash infusion from hedge fund Citadel–and CEO Mitch Caplan fell on his sword and resigned. Good news for shareholders: E*Trade only appears to have given up 20% of its stock to save itself. All things considered, that’s not a bad outcome.
Online brokerage E*Trade Financial Corp, which has been pounded by credit woes in the mortgage business, is getting a $2.55 billion cash infusion from Citadel Investment Group, the Wall Street Journal reported Thursday, citing people familiar with the deal. According to the Journal, Citadel will make a two-part investment in E*Trade in a bid to restore confidence and liquidity in the discount brokerage.The first part of the deal is the purchase of E*Trade’s entire $3 billion portfolio of asset-backed securities for a value around $800 million, the newspaper said. The second component is the purchase of $1.75 billion worth of 10-year notes, paying an annual interest rate of about 12.5 per cent, according to the Journal.
Following the regulatory approval process, Citadel is expected to own a 20 per cent stake in E*Trade, including the nearly 3 per cent it already owns, and gain a board seat, the Journal said.