E*Trade's biggest investor wants to sell the company

July 20, 2011: 1:27 PM ET
etrade-baby.top.jpg

E*Trade, known for its Super Bowl commercials starring a talking baby, is one of the most popular online brokerage firms but has seen its stock decline 94% over the last five years.

NEW YORK (CNNMoney) -- The E*Trade baby may soon have a reason to stop crying.

E*Trade Financial (ETFC) shares surged more than 15% Wednesday, after the company's largest shareholder publicly urged a possible sale of the company.

Citadel, the hedge fund that owns a 9.8% stake in the company, sent E*Trade a letter filed with the Securities and Exchange Commission, requesting a special shareholder meeting to discuss strategic alternatives, including a sale of the company.

Citadel is basically fed up after E*Trade posted four years of losses and saw its stock decline 94% over the last five years.

"The facts speak for themselves -- stunning losses from the Company, catastrophic losses for the shareholders," the letter said. "This is the story of E*Trade's poor management decisions."

Citadel cited toxic mortgage-backed securities as weighing on the company, and specifically called for the removal of Michael Parks and Donna Weaver from the company's board.

Stocks: Investors sidelined by debt debate

The letter claims that five of E*Trade's board members received $7 million in compensation, while presiding over the company's mortgage investment strategy and costing the company millions in losses.

E*Trade is the third largest publicly traded online brokerage firm, behind Charles Schwab (SCHW, Fortune 500) and TD Ameritrade (AMTD).

While E*Trade's brokerage business is strong, its $15.8 billion loan portfolio -- which includes mortgages and home equity loans -- remains a challenge for the company.

"The brokerage business is clearly attractive here, but if you buy the company, it comes with a loan portfolio with question marks around it," said Chris Allen, senior analyst with Evercore Partners.

Citadel's letter brings a new protagonist to drive change in the company, Allen said, but whether that can translate into shareholder value still remains to be seen.

E*Trade is Citadel's largest holding after its stock in Apple (AAPL, Fortune 500) and Google (GOOG, Fortune 500).

E*Trade declined to comment on this story. To top of page

Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 2:01pm ET
Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.32%4.26%
15 yr fixed3.36%3.27%
5/1 ARM3.37%3.27%
30 yr refi4.31%4.24%
15 yr refi3.34%3.25%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.