By Joseph A. Giannone
NEW YORK, Aug 19 (Reuters) - E*Trade Financial Corp Chief Executive Donald Layton on Wednesday said it was 'unlikely' regulators would approve a deal to steer nearly all of its customer orders through the desks of its largest stock- and bondholder, hedge fund firm Citadel Investment Group.
An amended order-flow agreement with Citadel 'likely won't happen,' Layton said during a meeting of shareholders to vote on a vital $1.7 billion debt swap.
Layton's comment comes days after the U.S. Office of Thrift Supervision suspended review of E*Trade's application to send 98 percent of trade orders to Citadel, up from 40 percent.
E*Trade's agreement in June to amend its order flow pact was part of a broader agreement that raised $400 million in new equity and swapped expensive debt for convertible securities. Citadel purchased $100 million of the new stock, and as the largest debt holder was key to the debt exchange.
The OTS decision to suspend the application marked a setback for Citadel's market-making business, which was in line to receive a surge in orders from E*Trade customers who make more than 4 million trades a month.
Some trading agreement may ultimately be approved, since the application was not rejected outright. E*Trade and Citadel declined to comment.
E*Trade shares fell 1.4 percent to $1.38 in Nasdaq trade.
Shareholders of the brokerage on Wednesday approved the $1.7 billion debt swap. Shareholders also increased E*Trade's share count and agreed to terminate its poison pill.
Ken Griffin's Chicago-based Citadel came to E*Trade's rescue two years ago, investing $2.75 billion to help the brokerage unload some toxic assets and emerged with a 20 percent stake. At that time E*Trade agreed to send Citadel 40 percent of its trades.
Yet E*Trade's credit troubles continued, leading to the new stock offering in June and the debt swap.
Last week Citadel announced plans to shed more than two-thirds of its E*Trade common stock, though the firm will remain the largest shareholder.
Including stock underlying Citadel's convertible debt, the firm would control about 37 percent of E*Trade's stock.
E*Trade, which entered the mortgage and consumer banking business through a 2000 merger, had sought and obtained OTS approval for the debt swap, which will bolster the struggling online broker's capital levels and preserve cash.
E*Trade also on Wednesday said its daily average revenue trades, which jumped in the second quarter, fell 10 percent in July from June and by nearly 4 percent from last July.
Total accounts rose during the month to more than 2.7 million. Client assets rose 7 percent from June, but fell 15 percent from a year earlier at $139 billion.
July's results were in line with his forecasts, said Sandler O'Neill analyst Richard Repetto, though they also lagged rivals. Customer assets were essentially flat, he said, compared with Schwab's net new assets of $5.6 billion.
(Reporting by Joseph A. Giannone, editing by Gerald E. McCormick and Robert MacMillan) Keywords: ETRADE/CITADEL (joseph.giannone@thomsonreuters.com; +1 646 223 6184; Reuters Messaging: joseph.giannone.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Aug 19 (Reuters) - E*Trade Financial Corp Chief Executive Donald Layton on Wednesday said it was 'unlikely' regulators would approve a deal to steer nearly all of its customer orders through the desks of its largest stock- and bondholder, hedge fund firm Citadel Investment Group.
An amended order-flow agreement with Citadel 'likely won't happen,' Layton said during a meeting of shareholders to vote on a vital $1.7 billion debt swap.
Layton's comment comes days after the U.S. Office of Thrift Supervision suspended review of E*Trade's application to send 98 percent of trade orders to Citadel, up from 40 percent.
E*Trade's agreement in June to amend its order flow pact was part of a broader agreement that raised $400 million in new equity and swapped expensive debt for convertible securities. Citadel purchased $100 million of the new stock, and as the largest debt holder was key to the debt exchange.
The OTS decision to suspend the application marked a setback for Citadel's market-making business, which was in line to receive a surge in orders from E*Trade customers who make more than 4 million trades a month.
Some trading agreement may ultimately be approved, since the application was not rejected outright. E*Trade and Citadel declined to comment.
E*Trade shares fell 1.4 percent to $1.38 in Nasdaq trade.
Shareholders of the brokerage on Wednesday approved the $1.7 billion debt swap. Shareholders also increased E*Trade's share count and agreed to terminate its poison pill.
Ken Griffin's Chicago-based Citadel came to E*Trade's rescue two years ago, investing $2.75 billion to help the brokerage unload some toxic assets and emerged with a 20 percent stake. At that time E*Trade agreed to send Citadel 40 percent of its trades.
Yet E*Trade's credit troubles continued, leading to the new stock offering in June and the debt swap.
Last week Citadel announced plans to shed more than two-thirds of its E*Trade common stock, though the firm will remain the largest shareholder.
Including stock underlying Citadel's convertible debt, the firm would control about 37 percent of E*Trade's stock.
E*Trade, which entered the mortgage and consumer banking business through a 2000 merger, had sought and obtained OTS approval for the debt swap, which will bolster the struggling online broker's capital levels and preserve cash.
E*Trade also on Wednesday said its daily average revenue trades, which jumped in the second quarter, fell 10 percent in July from June and by nearly 4 percent from last July.
Total accounts rose during the month to more than 2.7 million. Client assets rose 7 percent from June, but fell 15 percent from a year earlier at $139 billion.
July's results were in line with his forecasts, said Sandler O'Neill analyst Richard Repetto, though they also lagged rivals. Customer assets were essentially flat, he said, compared with Schwab's net new assets of $5.6 billion.
(Reporting by Joseph A. Giannone, editing by Gerald E. McCormick and Robert MacMillan) Keywords: ETRADE/CITADEL (joseph.giannone@thomsonreuters.com; +1 646 223 6184; Reuters Messaging: joseph.giannone.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.