Back to top

Analyst Blog

Citadel LLC – the chief investor in E*TRADE Financial Corporation (ETFC - Analyst Report) – announced that it is offloading stake in the latter, thereby concluding a 5-yeal old controversial as well as beneficial relationship. Citadel's investment in E*TRADE witnessed peaks and troughs over the years, reaching a high of 40% of its common stock on a fully-diluted basis in 2009.

Citadel will sell 27.4 million shares, which represents its entire stake in E*Trade, to Citigroup Inc (C - Analyst Report) in an underwritten offering. The deal is anticipated to close on or near Mar 19, 2013. However, the agreement will not affect E*TRADE’s total number of common shares outstanding.

In Nov 2007, Citadel – a Chicago-based hedge fund – bailed out E*TRADE by acquiring its 9.6% stake, investing $2.6 billion in cash. Further, the former received senior notes having an interest rate of 12.5% and bought E*TRADE Bank's subprime mortgage-backed securities portfolio having a face value of roughly $3 billion. Citadel has realized more than $800 million on its investment in E*Trade.

E*Trade also was involved in a deal with Citadel’s brokerage unit, which executed 40% of E*Trade’s customer trades. The deal was terminated in 2010. Further, E*Trade was embroiled in regulatory scandals.

Amid the challenging economy, we expect E*Trade’s initiatives to strengthen its client-advisor relationship. However, we remain concerned about the sluggish macroeconomic environment, which might lead to lower trading activities. Moreover, fluctuating interest rates are expected to continuously impact the company’s financials in the near term.

However, E*TRADE’s initiatives to reduce balance sheet risk by focusing more on brokerage and bring down its bank loan business appear to be promising, although these will put near-term pressure on the net interest margin. Moreover, its expense discipline and better capital position are impressive and will likely aid E*TRADE to navigate through the current cycle.

Currently, E*TRADE carries a Zacks Rank #3 (Hold). Other brokerage firms that are performing better include Evercore Partners Inc. (EVR - Snapshot Report) and Piper Jaffray Companies (PJC - Snapshot Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
PLANAR SYST… PLNR 4.44 +5.21%
BITAUTO HOL… BITA 81.71 +5.12%
CTPARTNERS… CTP 16.66 +4.26%
CHINA BIOLO… CBPO 47.91 +3.30%
MALLINCKROD… MNK 72.94 +2.85%