E*Trade Financial ( ETFC) sank 26% to an all-time low Tuesday after investors ran from the stock on fears the online broker will have to raise more capital.

Ratings agency Egan-Jones said E*Trade is in "dire need" of fresh financial support, according to a note published Monday.

"The company is in desperate need of more support which, if it does not receive shortly, might render it unsalvageable," the note said. "Our concern remains about adequate capitalization and unrealistic valuations of the $47 billion in mortgages and loan receivables."

The company is also closing its U.S. institutional sales business and will eliminate approximately 30 positions from the firm, according to the company.

E*Trade said in September that as part of a plan to focus on the retail business it was restructuring its institutional sales trading business, which was related to its international institutional business.

E*Trade shares, already beaten up over the past year by the ongoing credit crisis and deterioration of the housing market, closed Tuesday down 58 cents, or 20.5%, to $2.25.

A spokeswoman declined to comment on concerns about E*Trade's capital.

In late November, the New York-based online brokerage firm announced a $2.55 billion cash infusion from hedge fund Citadel Investments, which provided much-needed liquidity for the troubled company while it struggled to right the ship as its mortgage business crumbled.

Citadel paid $1.6 billion of capital in exchange for roughly 20% of E*Trade stock, as well as senior unsecured notes. Upon closing, expected by Jan. 15, Citadel will provide an additional $150 million.

E*Trade was forced to take writedowns on its $3 billion asset-backed securities portfolio, primarily within collateralized debt obligations, or CDOs, and second-lien securities. Citadel ended up purchasing the portfolio for just $800 million.

In addition, Mitch Caplan resigned as CEO. Caplan has become one of many top executives in the financial space to bid farewell as a result of the credit crunch.

Kicking off a rocky Tuesday in the financials was a report by the Wall Street Journal, saying that Bear Stearns' ( BSC) CEO James Cayne will step down as CEO, but retain his chairman title. President Alan Schwartz is expected to succeed Cayne as CEO, the article said. Shares of Bear Stearns fell almost 7% on Tuesday.

The news follows the departures this fall of Citigroup's ( C) Charles Prince and Merrill Lynch's ( MER) Stanley O'Neal. Both banks took billions of dollars in writedowns as a result of their exposure to CDOs and other subprime mortgage exposure.

Elsewhere in the financial sector, Countrywide Financial ( CFC) also slumped to a 52-week low on Tuesday. Rumors swirled that the nation's mortgage largest lender was about to file for bankruptcy, sending shares tumbling 27% lower. Countrywide denied the rumors.

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