E*Trade: Mission Not Accomplished

NEW YORK (TheStreet) -- E*Trade (ETFC Quote) Chairman and CEO Don Layton appears to believe his assignment of cleaning up the company's balance sheet is finished, but at least one analyst following the company is not convinced.

E*Trade announced Wednesday that Layton will retire at the end of the year. He will receive $375,000 per month through the end of the year, and an additional $1.5 million at year-end, "in return for his commitment to assist with the search for and transition to a successor," according to a company filing with the Securities and Exchange Commission.

" I have accomplished what was needed for me to end my time as CEO on schedule," the former JPMorgan Chase (JPM Quote) executive stated in a company press release Wednesday.

Layton joined E*Trade's board late in 2007, taking over as CEO shortly afterward. The release announcing his resignation stated that "under his tenure, E*Trade raised significant amounts of new capital and liquidity, substantially reduced the company's balance sheet risk, re-energized the company's core online brokerage business, recruited key senior executives and reorganized the management and strategy of the company."

But Michael Hecht, analyst at JMP Securities, believes Layton is declaring victory a bit prematurely.

" I still feel like he's kind of leaving mid-stream," he says. Hecht argues that despite early signs that loan delinquencies are stabilizing, they remain high.

"They're just less bad, and late-stage delinquencies are pretty terrible -- I mean, awful," Hecht says.

JMP research shows total delinquent loans at E*Trade jumped to 10% at the end of the second quarter this year from just under 6% three quarters ago.

Loan Delinquencies Continue Climbing at E*Trade Source: JMP Securities

A report on Thursday by Sandler O'Neill sounded a more positive note. It cited discussions with management of Citadel, E*Trade's largest shareholder, stating the giant Chicago-based hedge fund was "highly appreciative of CEO Don Layton's efforts in recapitalizing ETFC and repositioning the company for growth." A spokeswoman for Citadel did not respond to an email message seeking to confirm this characterization.

However, the same report from Sandler noted that during a dinner with company management Wednesday, "CFO Bruce Nolop pointed out that while [E*Trade] had likely 'turned the corner' with its recapitalization plan, the lack of brokerage questions by investors showed that they still had a ways to go before investors focus on what he believes is a strong cash generator -- [E*Trade]'s brokerage operations."