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E*Trade Woes Renew Buyout Chatter

E*Trade Financial's (ETFC) writedown woes that sent the stock spiraling Monday have renewed analyst speculation about the possibility the online broker could sell itself.

E*Trade shares were rebounding almost 14% on Tuesday, after dropping nearly 60% on a string of bad news Monday and late Friday, including a Citigroup downgrade and accompanying note that said the company's bank was in danger of failing and the company's warning that it expected writedowns to its $3 billion asset-backed securities portfolio.

While bargain hunters were returning to the stock Tuesday, analysts were focused on repercussions for the business -- including the possibility of a sale.

"We expect that the company is aggressively pursuing various alternatives to deal with the bank deterioration," Richard Repetto, an analyst at Sandler O'Neill & Partners, wrote in a note Monday. He downgraded the stock to hold from buy.

"CEO Mitch Caplan will pursue what's best for shareholders and would step aside/give up control of the company if an appropriate transaction was presented," Repetto added.

One possible buyer is rival TD Ameritrade (AMTD); market chatter this spring indicated it was in discussions with E*Trade over a possible merger. TD Ameritrade has been pressured by two big activist hedge funds to merge with an industry peer -- namely E*Trade or Charles Schwab (SCHW).

Even without a sale, TD Ameritrade, Schwab and Fidelity could benefit from E*Trade's troubles by picking up retail brokerage clients. A spokeswoman for TD Ameritrade did not return requests for comment.

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