Sponsored Link:

E*Trade Takes a Step Toward Recovery With Sale of Assets

By Jason Simpkins
Associate Editor

Beleaguered brokerage firm E*Trade Financial Corp. (ETFC) yesterday (Wednesday) announced the sale of $3 billion in mortgage-backed securities and municipal bonds, losing $5 million but bolstering its finances in the process, the company said in a statement.

The news helped E*Trade shares rise 7.1%, bringing them back from the all-time low of $2.21 they hit Tuesday, Bloomberg News reported. E*Trade was the worst performing stock in the Standard & Poor’s 500 Index in 2007, plummeting 87% on the year. The stock is down roughly 35% so far this year.

Like many financial-service companies, E*Trade was devastated by the collapse of the mortgage-related securities it held last year.

Stuck with a huge portfolio of collateralized debt obligations (CDOs), E*Trade was on the brink of bankruptcy in November. Fortunately, a group led by hedge fund manager Citadel stepped up with a $2.55 billion cash infusion, buying a share of the business and taking E*Trade’s riskiest assets off the books.

Citadel got 20% of the company and a $3 billion portfolio of CDOs for $800 million. The hedge fund firm also got a seat on the company’s board. Since then, E*Trade has started to engineer an ambitious recovery

"We have taken important steps in the execution of our turnaround plan by reducing balance sheet-related risk and maintaining strong bank capital levels," acting Chief Executive R. Jarrett Lilien said.

Robert Burton, the chief operating officer of E*Trade’s banking unit, will head a new committee established to reduce to the potential for further losses in the company’s real estate holdings, Bloomberg reported.

The company said in a statement that it would also close its institutional trading desk and "aggressively" lower its exposure to real estate obligations, eliminating about 30 jobs. 

Citigroup estimates E*Trade has lost about $30 billion in client assets in the past two months and reiterated its "sell" rating for the company. 

News and Related Story Links:

January 10th, 2008

Why Gold Will Surpass $2,500

Few investors realize that inflation is the least of the factors driving the bull market in gold. Other factors, like Venezuela's crackdown on gold exports, are likely to push prices higher. Find out how to play each of the "7 Key Drivers" in our Money Morning Publisher's Series report... Go here to get it for free.




This entry was posted on Thursday, January 10th, 2008 at 2:15 am and is filed under Jason Simpkins, Top News, etrade. You can follow any responses to this entry through the RSS 2.0 feed. Due to the amount of comments we receive Money Morning will not be able to respond to all questions. If you have not already registered to leave a comment, once doing so you will receive Money Morning's Daily Email. Responses are currently closed, but you can trackback from your own site.