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Analyst Who Trashed E*Trade May Buy It

Stocks in this article: ETFC AMTD C

NEW YORK ( TheStreet) -- E*Trade (ETFC) has been in a hole for nearly four years, and the analyst who dug the hole may now be in a position to throw it a rope.

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Prashant Bhatia, dealmaker for E*Trade's most likely merger partner TD Ameritrade (AMTD) -- is a former Citigroup (C) analyst that began questioning E*Trade's balance sheet and initiated years of turmoil for the company.

The online broker's shares plummeted in November 2007 after Bhatia, then an analyst at Citi, argued that E*Trade's mortgage-related investments could trigger a bank run, The New York Times reported at the time.

Even after E*Trade secured a $2.55 billion investment from Chicago hedge fund giant Citadel, Bhatia maintained his sell rating on E*Trade shares.

Flash forward to last week, when an exasperated Citadel, now E*Trade's largest shareholder, wrote a stinging letter to the online broker's board of directors, urging a sale of the company.

That letter revived longtime speculation that TD Ameritrade would snap up its troubled rival. TD Ameritrade has publicly expressed an interest in a possible deal for E*Trade, and, according to a report in The Wall Street Journal, will discuss the matter at a board meeting on Tuesday.

Thanks in part to Bhatia's bearish analysis, Ameritrade ought to be able to demand a low price. So it is perhaps only fitting that Bhatia has joined Ameritrade as its chief dealmaker.

According to an Ameritrade spokeswoman, Bhatia is now in charge of business development at Ameritrade, having joined the company in March 2009. In that role, he leads a team that will provide a detailed analysis to Ameritrade CFO Bill Gerber about whether Ameritrade should acquire the company Bhatia helped trash as an analyst.

The Ameritade spokeswoman said Bhatia wasn't available for an interview, and she declined to comment on the situation.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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