Citadel Infuses E*Trade with Strong, Experienced Management

On November 29, 2007 Citadel invested $2.5 billion of cash into E*Trade (ETFC). Citadel had been “scrutinizing E*Trade’s balance sheet” since July 2007, when E*Trade first reported its mortgage market problems in a conference call. “So Citadel understood better than most—even E*Trade management—not only how serious its problems were but also the real value of E*Trade’s business” (source).

With this transaction, Citadel also became E*Trade’s largest shareholder with 20% of E*Trade’s stock. At this time Citadel owns 89.53 million shares; and holds $1.75 billion of 10-year bonds at 12.5% interest. As E*Trade’s biggest shareholder and debtor, Citadel influenced the appointment of Donald Layton as CEO on March 3, 2008. Layton had worked for 29 years at JP Morgan Chase, but was at that time living leisurely as a retired banker and serving on E*Trades board of directors. Pulling E*Trade out of this mortgage mess was not the way Layton planned to spend his retirement years. Why did Layton come out of retirement and accept the position of CEO? When asked, Layton stated, “The board ask me if I would do it... I didn’t get to where I am without having a competitive side” (source).