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 24,834.41 -178.88 -0.72%
Nasdaq 7,378.46 -15.58 -0.21%
S&P 500 2,724.44 -8.57 -0.31%
Treasuries 3.06 0.00 0.00%
Data as of 1:59am ET
Company Price Change % Change
Micron Technology In... 59.03 3.55 6.40%
General Electric Co 15.29 0.03 0.20%
Bank of America Corp... 30.89 0.34 1.11%
Advanced Micro Devic... 12.98 -0.01 -0.08%
AT&T Inc 32.43 -0.16 -0.49%
Data as of May 22
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.53%4.52%
15 yr fixed3.96%3.95%
5/1 ARM4.41%4.43%
30 yr refi4.52%4.51%
15 yr refi3.94%3.93%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates: