[ by Howard Haykin ]

Investors dumped their shares in E*Trade Financial Corp. (ETFC) following the announcement that Citadel Investment Group, E*Trade's biggest shareholder, would sell its remaining 10% in the company.  That news led to a sell-off on Thursday that shaved nearly 9% off the market value of ETFC shares.  [See Thursday's ON THE MOVE posting, "E*Trade Breaks a Bucks ..."]  

While the sale of the Citadel stake understandably will pressure shares for the short term, at least one market prognosticator - 247Wall Street columnist Jon Ogg - believes the sale should be good news ahead for E*Trade’s longer-term prospects.

The Silver Lining.    The analysts at 247WallStreet say they're mostly evaluating E*Trade now for new investors who want to evaluate the online brokerage firm on a standalone basis. And, here are some posits - 'positive' or otherwise - about the firm in the post-Citadel era:

• E*Trade finally will be free to govern itself much more independently without Ken Griffin, the firm's demanding director or so-called chief puppet-master.

¤  This is not intended as an insult to Mr. Griffin who, after all, was E*Trade's savior during the 2008 credit crisis.

• With Citadel out of the way, investors should not expect a bidder to magically appear. 
• On a long-term basis, E*Trade now will more or less be free to make its own decisions, so long as it does not violate covenants or other existing financial restrictions.
• The company has sold or written off more of its old loan portfolio - and reportedly now is down about 70% from its peak, and just over $10 billion.
• In spite of the apparent reduction, the loan portfolio it is still a main drag for would-be buyers;  and investors perceive these mortgages and other crazy loans to be a probable black hole on the balance sheet.
• Loan delinquencies are reportedly also lower. 
• Yet, it nonetheless is hard to trust the numbers because the pain was so sharp. It almost imploded E*Trade, and Ken Griffin kept that from happening.
• It's always possible, though not probable, that an online rival might consider acquiring E*Trade - e.g., Charles Schwab or TD Ameritrade.  However, E*Trade first needs to get further past the Citadel voting ties, and to get its loans in better and better shape.

If and when E*Trade is entirely clean, the question to ask will be what the firm is worth all on its own.  Interest rates might be higher by then, and these firms can start making money off client deposits too. E*Trade’s value might still be much higher down the road than today’s value.
 

For further details, go to:   [247WallStreet, 3/14/13 ].