E*Trade: Hey Mitch, how about paying investors back

Posted Nov 29th 2007 8:50AM by Aaron Katsman
Filed under: Private Equity, Scandals, Citigroup Inc. (C)

Today's news of E*Trade(NASDAQ:ETFC) receiving a $2.5 billion cash infusion as part of selling off its $3 billion asset-backed securities (ABS) portfolio, including its ABS collateralized debt obligations (CDOs) and second lien securities to Citadel Investment Group, is bound to the talk of Wall Street. As usual there are two big winners and one big loser.

The winners:

Citadel scores big-time getting the $3 billion ABS business for about $0.30 on the dollar. I can only imagine how much money it is going to make on that deal. Once the dust clears from the whole subprime mess, and credit markets calm, this portfolio will skyrocket in value and Citadel will laugh all the way to the bank.

Mitch Caplan, the CEO who gets to go home with a huge package. Glad to see the man who oversaw this whole mess is going to walk away with millions.

The Losers:

As usual shareholders are left holding the bag. Aside from a large tax-loss that can be used to offset some gains, investors get nothing. Sure the stock will spike today, and over the long-term the company may even regain some its past glory (if it's not sold), but for long-time investors who have owned the stock for many years, thinking that the company really will revolutionize the financial services industry, which they actually have done, they are stuck with a loser. it wasn't too long ago the stock was trading in the $20's. Where is the fairness? Mitch, who was asleep at the wheel and allowed for all this to happen, is going to walk away with millions and the poor shareholder is left with nothing.

Thanks Mitch. Send regards to Chuck Prince.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer holds a position in ETFC as of 11/29/07.

Tags: c, citadel, etfc, etrade, inthenews