E-Trade Gets $2.5 Billion from Citadel Investment

Online brokerage E-Trade Financial Corp, which has been pounded by credit woes in the

E Trade
E Trade

mortgage business, said on Thursday that it was getting a $2.55 billion cash infusion from investors led by Citadel Investment Group.

The agreement includes immediate funding of about $2.4 billion and rids the company of its $3 billion asset-backed securities portfolio, the source of E-Trade's financial troubles.

Chicago-based Citadel, which has a reputation for making investments in distressed companies, will pay $800 million for E-Trade's asset-backed securities portfolio. And Citadel will make an additional $150 million payment by Jan. 15.

E-Trade said it will take a fourth-quarter charge of $2.2 billion as a result of the ABS sale. It will also increase its allowance for bad loans to $400 million.

Citadel, which is leading an investor group that includes BlackRock , will own about 18 percent of E-Trade after the transaction and have a seat on the board.

Search for New CEO

New York-based E-Trade also named Chief Operating Officer Jarrett Lilien as acting chief executive. He replaces Mitchell Caplan, who stepped down. And Donald Layton, a former vice chairman of JPMorgan Chase & Co, will become chairman.

Caplan will retain a seat on the board and have an advisory role, E-Trade said.

E-Trade said it is launching a search for a new CEO, and Lilien, who has been with the firm since 1999, will be considered along with external candidates.

Analysts had previously said E-Trade would have to pursue strategic alternatives, such as a merger or sale of some assets, after large losses in its mortgage segment, including possible takeovers by rivals Charles Schwab or TD Ameritrade Holding .

E-Trade said its board considered a range of alternatives before concluding that the transaction with Citadel provided the most benefit to shareholders.