E*Trade, TD Ameritrade Could Be a Fit

NEW YORK (TheStreet) -- The speculation for months has been that E*Trade(ETFC Quote) will be a very attractive acquisition candidate once it makes meaningful progress in winding down its toxic home equity loan portfolio, and TD Ameritrade(AMTD Quote) is still the name that most often surfaces in relation to such a deal.

Kim Hillyer, a spokesperson for TD Ameritrade, said the company has a policy to not comment on rumors or speculation, but she told TheStreet Friday that: "Any acquisition has to make sense for the company to move forward." E*Trade didn't return a request for comment.

That sentiment about the logic of the deal, of course, prompts the question of whether or not bringing E*Trade into the fold would be a wise move for TD Ameritrade.

There are plenty on Wall Street who seem to think so and Sandler O'Neill analyst Rich Repetto is one of them.

"TD Ameritrade is the most likely acquirer for E*TRADE," he says. The main problem with acquiring E*TRADE is taking over the roughly $8.28 billion in home equity loans, which would have to be marked to market, a burden he believes TD Ameritrade could handle.

The going rate for fair value on those loans is roughly 60 cents on the dollar, a level that would result in a $3.3 billion writedown for the acquirer. Repetto says TD Ameritrade's TD Bank business could cover that writedown and assume the assets, while the company's brokerage arm would be happy to take over the online trading accounts. "It rids itself of a competitor," says Repetto.