E-Trade said the deal would shore up its balance sheet after it was forced to take a write-down recently, due to rising defaults on its mortgage security portfolio. E-Trade CEO Mitchell H. Caplan stepped down and President and Chief Operating Officer R. Jarrett Lilien will become acting CEO until a permanent replacement is found.
“E-Trade’s core business is strong,” Lilien said in a statement. “This transaction with Citadel is not only a major vote of confidence from one of the world’s leading financial institutions but also allows us to directly address customer concerns and get back to our real business, providing industry-leading products and services to our customers.”
E-Trade’s shares rose $1.22, or 23%, to $6.50 in pre-market trading Thursday.
Citadel will acquire E-Trade’s entire asset-backed securities portfolio – including collateralized debt obligations – for $800 million in cash, removing assets with the greatest market risk
E-Trade said it will record a large fourth-quarter loss on its home equity loan portfolio and will take a $2.2 billion charge as a result of the sale.
The deal includes immediate funding of about $2.4 billion, with the remaining $150 million expected by Jan. 15. E-Trade will receive $1.6 billion of capital in exchange for 12.5% senior unsecured notes and common stock.
Citadel will get to nominate a representative to E-Trade’s board.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.