InterDigital Inc (IDCC)

[littleinvestor]

Comment: Hedge Fund purchases Etrade share at beaten down price.

Hedge fund invests $2.55 billion in E*Trade
BRADLEY KEOUN BLOOMBERG NEWS
NEW YORK – E*Trade Financial Corp., the online bank and brokerage, got a $2.55-billion infusion from Citadel Investment Group LLC and ousted its chief executive yesterday after its shares sank almost 80 per cent and customers withdrew cash.
Chief operating officer Jarrett Lilien took over as acting CEO, replacing Mitchell Caplan.
Citadel, the Chicago-based hedge-fund manager run by Kenneth Griffin, will get a 17-percent stake in the company and pay about $800 million, or 27 cents on the dollar, or assetbacked securities with a face value of $3 billion. E*Trade’s shares fell 8.7 per cent in Nasdaq trading.
The company joins lenders Citigroup Inc. and Countrywide Financial Corp. in turning to outside investors for capital amid a plunge in the value of asset-backed securities linked to subprime mortgages. This month, a Citigroup analyst said losses from bad debts might lead E*Trade into bankruptcy, spurring customers to pull out about $6 billion, or 15 per cent of the cash in client accounts at the end of September, Lilien said in an interview.
“The company was getting awfully close to violating their regulatory capital ratios,” said Jaime Peters, an analyst at Morningstar Inc. in Chicago. “They needed an infusion of cash and they needed it fast.”
Caplan’s plan of expanding the company’s banking business by tripling loans backfired, sending E*Trade shares to a five-year low this month.
E*Trade will take a $2.2-billion charge for the sale of the debt to Citadel, wiping out almost five years of profit for the New Yorkbased company.