E*Trade Aid Would Trickle Down to Citadel

Federal approval of E*Trade Financial's (ETFC Quote) application for government bailout money would benefit its largest investor, ailing hedge fund Citadel Investment Group.

Citadel, like any deep-pocketed investor in the credit crunch, has been hit hard by the market's steep downturn. The Chicago alternative asset firm has suffered losses of 47% in its main funds this year, according to The Wall Street Journal, citing investors. Since its decision a year ago to make a $2.5 billion debt and equity commitment to E*Trade -- while not a make or break investment for a firm with some $12 billion in assets -- Citadel has seen the stock fall nearly 80% from its closing price the day before it made its investment.

E*Trade announced last month that its banking subsidiary had applied for an $800 million investment through the Troubled Assets Relief Program, or TARP. E*Trade has not yet received even preliminary approval for the aid, but has said publicly that it is "optimistic" that it will receive an approval "in the near future." ...