NEW YORK ( TheStreet) -- E*Trade Financial ( ETFC) may be back to square one in the search for its next permanent CEO. The Wall Street Journal is reporting that E*Trade's leading outside candidate dropped out of the running about a week ago, according to people familiar with the situation. The identity of the candidate was unclear, but apparently E*Trade directors became concerned that this person "might become distracted by a pending divorce," the Journal article added, citing people with knowledge of the discussions. E*Trade has been looking for a successor since September when it announced its former Chairman and CEO Don Layton would depart once his contract expired at the end of 2009. After months of searching and no replacement to announce, E*Trade named lead independent director Robert Druskin to become interim CEO. Druskin, a former Citigroup ( C) executive, is not in the running to hold the position permanently. During the conference call around its fourth-quarter results in January, E*Trade disclosed it did have a "preferred candidate" in mind for the position, but more than a month later, no formal announcement had been made. A source of TheStreet claimed that E*Trade was having trouble agreeing on a compensation package and start time with the candidate, while some market observers seemed concerned that the company was instead working on a deal to sell itself. Another source told TheStreet that several candidates have turned down the offer to head the online broker.
E*Trade is one of many financial firms caught in the crosshairs as the credit crisis played out. It has had to recapitalize twice in the past two years or so, with hedge fund Citadel Investments becoming a large debt and equity holder in the process. An E*Trade spokeswoman told the Journal that the CEO search "remains ongoing," while Druskin remains "fully committed" as interim CEO. The spokeswoman did not immediately answer questions posed in an email to the company by TheStreet. Shares of E*Trade were off by 2 cents to $1.62 on Tuesday on relatively light volume of 12.5 million. The issue's three-month trailing daily average churn is more than 39 million. --Written by Laurie Kulikowski in New York.