Citadel holds E*Trade's feet to fire

We’re not mad, we’re just disappointed

Shares of E*Trade Financial were up sharply after a regulatory filing showed the company’s biggest shareholder, Chicago-based hedge fund Citadel, had expressed “continuing and significant dissatisfaction” with the company’s performance. “Having endured nearly four years of value destruction and lost opportunity, we believe it is time for change,” Citadel wrote in a letter to E*Trade CEO Steven Freiberg filed with the SEC July 20. “The facts speak for themselves – stunning losses for the company, catastrophic losses for the shareholders. This is the story of E*Trade’s poor management decisions.”

The letter went on to demand E*Trade host a special meeting with shareholders, so that they may vote on removing staggered board provisions, removing directors Michael Parks and Donna Weaver and hiring an investment banking firm to review “strategic alternatives”.

A lot to ask, sure, but it’s not like Citadel's requests are unfounded. The hedge fund injected $2.55 billion of cash into E*Trade back in November 2007 so that it could avoid bankruptcy, and that hasn't turned out to be a winning investment. E*Trade's stock has tumbled more than 94% since the beginning of the subprime crisis, as the company has recorded as much as $3 billion of losses relating to soured mortgages. Citadel said it will submit a notice calling on shareholders to support a special meeting if E*Trade doesn’t do so on its own by July 22.

E*Trade Financial (ETFC : NASDAQ : US$14.72), Net Change: 1.77, % Change: 13.67%, Volume: 32,605,588

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx

About the Author

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx.

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