This follows the stepping down of both Merrill Lynch and Citi’s chief executives over the past month, as firms shake up their management teams after suffering losses from the credit crisis.
Citadel will purchase E*Trade’s entire asset-backed securities (ABS) portfolio in a deal worth $2.5 billion. This transaction removes the assets with the greatest market risk from the firm's consolidated balance sheet. E*Trade said the deal would allow the company to focus on its core retail business, and would provide additional capital to manage credit risk.
"This transaction with Citadel is not only a major vote of confidence from one of the world's leading financial institutions, but also allows us to directly address customer concerns and get back to our real business, which is providing industry-leading products and services to our customers," said Lilien.
E*Trade had seen continued declines in the fair value of its $3 billion asset-backed securities portfolio, predominantly within ABS collateralised debt obligations (CDO) and second-lien securities. The total exposure to ABS CDO and second-lien securities on September 30, 2007 was approximately $450 million in amortised cost, including about $50 million of AAA-rated asset-backed CDOs that were downgraded to below investment grade. The company stated it expected the declines in fair value to result in further securities writedowns in the fourth quarter.