If you just read the E*Trade Financial Corp. (NASDAQ: ETFC) release about firing CEO Steven Freiberg, you missed the biggest point. Freiberg’s tenure highlights were a drop of 50% in the share price, a no-go on a strategic review, and the continuation of the great baby commercials. The real story here is that E*TRADE is now back as a buyout candidate.
The search committee is looking for a permanent replacement to take over for now interim CEO Frank Petrilli, who is Chairman, as a permanent CEO. The company’s talk that this CEO will “have a strong understanding of the brokerage industry, a foundation in enterprise risk management, and a depth of experience that will allow them to immediately lead E*TRADE’s strategy and management team.” What the online brokerage firm did not say is that they just need a guy who knows how to get a brokerage firm acquired.
The Charles Schwab Corporation (NYSE: SCHW) is worth some $16 billion and TD Ameritrade Holding Corporation (NYSE: AMTD) is worth $9.2 billion. Even after a 7% gain on the day, E*TRADE is worth just under $2.5 billion. Both online brokerages have been rumored to be acquirers of E*TRADE in the past. The reality is that there are a whole host of other banking and brokerage firms which would be interested in acquiring E*TRADE.
There is a trick here. E*TRADE still has legacy problems from its loans and forays into the lending and mortgage arena. Do you remember the “Take your mortgage with you” plan? These have to be removed and untied from the brokerage operation and that is going to require a salvage and breakup expert.
The trick is that Citadel is still a heavy influence. Today’s news makes Citadel only that much more important. Net new brokerage accounts were 46,000 in the last quarter and that generated year-to-date net new accounts of 92,000 for 6.6% annualized growth. New brokerage assets in the last quarter were $2.2 billion and that is $6.2 billion in net new assets for the year and represents 8.5% annualized growth.
E*TRADE has some 4.4 million customer accounts, of which 2.9 million are the online brokerage accounts. There is value here, particularly if E*TRADE can manage to quarantine what is left from its non-brokerage accounts.
JON C. OGG