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:

• CNNMoney:
  E*Trade hits all-time low; Citigroup, Standard & Poor’s reiterate sell ratings

• Reuters:
  E*Trade sells more securities, lowers debt

• Bloomberg:
  E*Trade Sells $3 Billion of Mortgage, Municipal Bonds

• Money Morning:
  Citadel Throws E-Trade a $2.5 Billion Life Raft