Want to Acquire E*Trade? Better Wait
A sale of E*Trade, the online discount broker with an acute case of the mortgage blues, is now inevitable. But when will it happen?
E*Trade appointed Donald Layton to be its new CEO, replacing R. Jarrett Lilien who after a little more than three months in the CEO suite is being named president and chief operating officer. Layton was named the company's chairman in November, and he'll hold onto that post. Before November, Layton spent 29 years at Chase Manhattan and then J.P. Morgan when it bought Chase. He'll be paid $1 million a year plus options currently valued at $15.4 million.
Layton quickly made news, telling the Wall Street Journal what most people were probably guessing that he was thinking: E*Trade would be put up for sale. Citadel Investment Group, which owns a fifth of E*Trade after injecting cash into the troubled company, wants to see some return via an acquisition.
The question is who would want it right now? As Douglas McIntyre said on the 24/7 Wall Street blog,
"The home equity portfolio which the company owns is almost certainly dropping in value as each week passes and mortgage defaults rise. Almost every sign points to the fact that housing is getting worse and not better."E*Trade may sell the mortgage loans to one company, but that's a tough sell until that market stabilizes. It could sell the discount-trading operations to Ameritrade or Schwab or a larger bank wanting a bigger online presence. But if the market runs into bear territory, trading volume will slow dramatically. So E*Trade may have to wait until that slump passes, and that could be months away.
So E*Trade may have to wear that for sale sign for some time before buyers start kicking its tires.