One of the US' biggest hedge funds, Citadel, has agreed to pump US$2.5 billion into the troubled online brokerage ETrade to help shore up its ailing balance sheet, the firms said on Thursday.
The deal, if approved by regulators, will enable Chicago-based Citadel to amass a hefty 20 percent shareholding in ETrade, which also markets banking services.
The online broker's share price has plummeted in recent weeks as it has been forced to writedown the value of mortgage-backed securities it holds which have been hit by a lingering US housing slump and rising home foreclosures.
ETrade's stock surged after the deal was announced, but closed down 8.7 percent at US$4.82.
"The cash infusion of 2.5 billion dollars as a result of the transaction does provide much-needed support to ETrade.
However, we believe that this transaction is a transitional step toward stabilizing the business," the credit ratings agency Standard & Poor's said.
The online broker also announced chief executive Mitchell Caplan had relinquished his post and had been replaced by acting CEO R. Jarrett Lilien, who joined ETrade in 1999.
Caplan is the latest chief executive to lose his job at a financial firm amid rising losses tied to mortgage-backed securities.
"The company will conduct an executive search for the CEO position, which will include Mr Lilien and external candidates," ETrade said.
Caplan had expressed disappointment last month when ETrade revealed it made a third-quarter loss of US$58 million compared with a net profit of US$153 million in the same period of last year.
ETrade's finances slipped into the red mainly because it was forced to write down US$197 million in stressed securities.
The former CEOs of Citigroup and Merrill Lynch, Charles Prince and Stanley O'Neill respectively, stepped down in the past month.
The banks are also suffering from mortgage-related writedowns, but their multibillion-dollar losses dwarf ETrade's writeoffs.
Citigroup, the US' second-biggest financial firm, won a vast cash injection of US$7.5 billion from a United Arab Emirates investment fund earlier this week.
Although primarily known as an online brokerage, ETrade holds a substantial portfolio of mortgage-backed securities and other investments. It said Citadel will take over ownership of some of ETrade's stressed securities.
ETrade also markets mortgages, home improvement loans, savings accounts and credit cards among other financial offerings.
Under the deal, ETrade will gain immediate funding of US$2.4 billion and a remaining US$150 million by mid-January.
"The investment fortifies the company's balance sheet, allows the company to focus on its core retail business and provides additional capital to manage credit risk," ETrade said.
Citadel CEO Ken Griffin said the US$2.5 billion deal showed a strong vote of confidence in ETrade and expressed hope it would restore customer confidence in the online broker.
SECURITY: As China is ‘reshaping’ Hong Kong’s population, Taiwan must raise the eligibility threshold for applications from Hong Kongers, Chiu Chui-cheng said When Hong Kong and Macau citizens apply for residency in Taiwan, it would be under a new category that includes a “national security observation period,” Mainland Affairs Council (MAC) Minister Chiu Chui-cheng (邱垂正) said yesterday. President William Lai (賴清德) on March 13 announced 17 strategies to counter China’s aggression toward Taiwan, including incorporating national security considerations into the review process for residency applications from Hong Kong and Macau citizens. The situation in Hong Kong is constantly changing, Chiu said to media yesterday on the sidelines of the Taipei Technology Run hosted by the Taipei Neihu Technology Park Development Association. With
CARROT AND STICK: While unrelenting in its military threats, China attracted nearly 40,000 Taiwanese to over 400 business events last year Nearly 40,000 Taiwanese last year joined industry events in China, such as conferences and trade fairs, supported by the Chinese government, a study showed yesterday, as Beijing ramps up a charm offensive toward Taipei alongside military pressure. China has long taken a carrot-and-stick approach to Taiwan, threatening it with the prospect of military action while reaching out to those it believes are amenable to Beijing’s point of view. Taiwanese security officials are wary of what they see as Beijing’s influence campaigns to sway public opinion after Taipei and Beijing gradually resumed travel links halted by the COVID-19 pandemic, but the scale of
A US Marine Corps regiment equipped with Naval Strike Missiles (NSM) is set to participate in the upcoming Balikatan 25 exercise in the Luzon Strait, marking the system’s first-ever deployment in the Philippines. US and Philippine officials have separately confirmed that the Navy Marine Expeditionary Ship Interdiction System (NMESIS) — the mobile launch platform for the Naval Strike Missile — would take part in the joint exercise. The missiles are being deployed to “a strategic first island chain chokepoint” in the waters between Taiwan proper and the Philippines, US-based Naval News reported. “The Luzon Strait and Bashi Channel represent a critical access
Pope Francis is be laid to rest on Saturday after lying in state for three days in St Peter’s Basilica, where the faithful are expected to flock to pay their respects to history’s first Latin American pontiff. The cardinals met yesterday in the Vatican’s synod hall to chart the next steps before a conclave begins to choose Francis’ successor, as condolences poured in from around the world. According to current norms, the conclave must begin between May 5 and 10. The cardinals set the funeral for Saturday at 10am in St Peter’s Square, to be celebrated by the dean of the College
RSS