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) -- The search for a new CEO at

E*Trade Financial

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has extended beyond five months now, and it seems fair to ask, given the surplus of executives displaced by the financial crisis, what's taking so long?

The lengthy timeframe since E*Trade said on Sept. 9 that Donald Layton would leave its top job at the end of 2009 has created a vacuum that's given birth to speculation the company is either intent on selling itself or else no one wants the job. Sources with some knowledge of the search have told




is having a difficult time with certain well-qualified candidates declining the opportunity, and others driving a hard bargain over compensation.

During the Jan. 27 conference call accompanying the release of its quarterly results, E*Trade management said the company was making "meaningful progress" toward hiring a permanent CEO, with Chairman Robert Druskin, serving in the role on an interim basis, specifically stating there was a "preferred candidate" in mind.


Our intention is to have an announcement in the near future," Druskin said in response to an analyst's question.

Still two weeks later, a CEO has yet to be announced. And some are wondering whether the still bleeding loan portfolio on its bank balance sheet or the persistent rumors of a sale are getting in the way.

"This is the greatest CEO search in the history of searches," one source that declined to be named said in an email. "No one must want this job if they can't sell it by now. There are plenty of good candidates out in the Street but the next CEO needs to have a strong brokerage background as that's the asset with value. The Board or his senior staff can help wind down the bank."

E*Trade's quest to find a permanent leader mirrors the troubles of

Bank of America

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late last year after former CEO Ken Lewis resigned amid heated controversy over the Charlotte, N.C. institution's purchase of Merrill Lynch. Bank of America had said that it was looking both internally and externally for a successor to Lewis but ultimately went with Brian Moynihan, its former head of consumer banking.

In this case, there is also an internal candidate for the job: Mike Curcio, the president of E*Trade Securities. Curcio is an 8-year veteran of the company, and the unit he runs represents the company's core retail trading business. Ironically, Curcio originally came from TD Waterhouse, which is now part of

TD Ameritrade

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, the company most often cited as a likely suitor for E*Trade. But the source who mentioned Curcio as being in the mix also said he's unlikely to get the job because the board thinks he is not ready yet.

"The strike against Mike is he doesn't really know the bank/balance sheet side of the equation," this source said. "But he would be good as he does know brokerage well and the staff is loyal to him as most have worked for him for years."

Meanwhile, several candidates, including Layton, whom the board wanted to stay on as head of the company, as well a number of other brokerage-knowledgeable executives, have turned E*Trade down, according to sources.

A second person familiar with E*Trade's CEO search says the sticking points for these candidates have included compensation and start time. E*Trade needs a CEO that is not a traditional banker, rather someone a little bit more creative, with experience in the financial sector, this source believes.

"They should have had a pretty big field to pick from. It's tough times out there," the second source says. "

But I have a feeling that

Druskin is going to be in that role for a bit longer."

Druskin said on the conference call that, ideally the new chief executive would stay for more than two years, have a strong background in financial services, be "very comfortable" with technology, and understand retail financial services.

"I would tell you that we have seen enormously attractive candidates," Druskin said on the call. An E*Trade spokeswoman declined to comment for this story.

E*Trade got caught in the crosshairs of the credit crisis with its ill-timed expansion into banking, in particular home-equity loans, and it has spent the two years that Layton was in charge digging its way out.

The announcement that Druskin, E*Trade's lead independent director and a former


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executive, would take over on an interim basis on Dec. 21 was abrupt, coming ten days before Layton was set to leave at the end of 2009. The company made clear Druskin was just filling the spot until a successor was found, saying in its press release at that time he was not a candidate for the CEO job. Layton is still in the loop apparently as he has a consulting agreement with E*Trade that calls for him to help Druskin and the yet to-be-named CEO "as needed."

A perceived or real lack of leadership is never good for a public company as it adds a layer of uncertainty to the future and makes investors jittery. It's the last thing that E*Trade needs, especially after it spent the past two years cleaning up the mess left by former Chairman and CEO Mitch Caplan. It was Caplan's decision to take the online broker into increasingly risky businesses that led to many of the problems it's still unwinding today.

Under Layton's leadership, E*Trade made solid progress turning itself around, including garnering a large investment from Chicago-based Citadel Investment Group. Layton later executed a second recapitalization plan this summer in which Citadel played a significant role. But the company still has a ways to go.

As a result of these deals, Citadel's investment currently includes almost 9% of E*Trade's equity as well as a significant amount of its debt, and the firm's founding father, Ken Griffin, has a spot on E*Trade's board. With Griffin on the board, it's likely that some tough negotiations are going on with regard to the next CEO. As the largest stakeholder in E*Trade, Citadel undoubtedly wants to make sure that the CEO is capable and experienced so that it can maximize its investment.

Meanwhile, the lack of a new CEO has only added to the whispers that E*Trade is ripe for a buyout. The company's recent decision to cut its trading commission prices along with the rest of the online brokers is also seen in some circles as just more fodder for a potential deal, given the obvious opportunity for consolidation in the industry if everyone is charging essentially the same amount per trade. A price war that began with

Charles Schwab

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making its move in late January led to mutual fund giant Fidelity Investments announcing a similar price structure in the middle of last week, and


following suit after last Friday's closing bell.

E*Trade has been labeled a takeout target for years but the


rumors really started up again in earnest late in 2009 after TD Ameritrade CEO Fred Tomczyk discussed an acquisition as a possible use of his firm's excess cash. TD Ameritrade has long maintained that it would consider a merger with E*Trade under the right circumstances, if the deal were beneficial to shareholders.

Not all observers see a buyout in the offing for the company, however, especially since E*Trade's loan portfolio is still in rough shape. Total delinquent loans stood at $2.29 billion at the end of the fourth quarter, with the percentage of nonperforming loans (those more than 90 days overdue) rising to 7.31% of that total from 6.87% at the same point a year earlier.

Hiring a new CEO with a longer time horizon for job retention "decreases the probability of a near-term sale" of the brokerage business, JMP Securities analyst Michael Hecht said recently in a note to clients.

Hecht believes the sale of E*Trade's brokerage business is "virtually impossible" right now anyway, since many of the retail brokerage deposits fund the loan portfolio.

E*Trade's still dented loan portfolio and the lack of permanent leadership appear to be weighing on the stock in 2010. Based on Thursday's closing price at $1.49, the shares are faring considerably worse than their peers, sliding 15% this year vs. respective declines of a little more than 5% for Schwab and 7% for TD Ameritrade. And while naming a new CEO would provide a bit of clarity, there's no guarantee it will bring in the buyers for the stock.

--Written by Laurie Kulikowski in New York.