E*Trade Names CEO; Eyes Reverse Split

(E*Trade stock prices, analyst comments included in this update.)

NEW YORK ( TheStreet) -- E*Trade Financial ( ETFC) shares were falling in furious trading Monday, after the company named a new CEO and announced plans for a reverse stock split.

E*Trade named a Steven Freiberg its new CEO, choosing the former head of Citigroup's ( C) global consumer group to fill the role after months of indecision, according to a press release.

Freiberg, 53, will start at E*Trade on April 1 and will join the online broker's board of directors. He will succeed interim CEO Robert Druskin, who took over the position from former head Don Layton after his contract expired in December. Druskin, also a former Citigroup executive, will remain as E*Trade's chairman of the board.
Etrade

In the same release, E*Trade said it will seek the approval of shareholders at its annual meeting in May for a 1-for-10 reverse stock split and corresponding decrease to the company's authorized shares of common stock to 400 million shares. E*Trade's current shares outstanding total 1.92 billion.

A reverse stock split reduces the number of a company's shares outstanding and increasing the nominal value of each share without making any fundamental change to the company. Companies often elect to do a reverse stock split in an effort to make their stock look more valuable if the share price is significantly low.
Stockpickr: Who Owns E*Trade?

Shares of E*Trade were furiously trading Monday, as the stock slid nearly 6% earlier in the day. The stock recently was down 2.9% to $1.52. More than 78 million shares had changed hands, widely surpassing the stock's three-month daily average of 35 million.

"With 2009's successful recapitalization behind us, our permanent CEO in place on April 1, and a focus on returning to sustained profitability, we believe a reverse stock split is a logical next step for the company as we complete our financial and managerial restructuring," Druskin said in a statement. "Our board has authorized these actions and we look forward to sharing the proposal with stockholders."

Freiberg is a 30-year veteran of Citigroup in which he served multiple senior level positions at the financial institution. He was most recently co-chairman and co-CEO of Citigroup's global consumer group, which constituted all consumer business line items in 53 countries, including investment products, retail/commercial banking, credit cards, mortgages and consumer finance. Under Freiberg's leadership, the businesses he oversaw represented more than 50% of Citigroup's earnings.

Druskin further added as E*Trade begins its next phase of growth, Freiberg "brings extensive experience in driving the strategic direction and management of a broad and diverse consumer financial services franchise."

"We are fortunate to have Steve as our next CEO and are confident that he is the best person to help E*Trade reach its full potential," Druskin said.

E*Trade suffered major setbacks as the credit crisis came to full steam, forcing it to recapitalize twice, with hedge fund Citadel Investments taking a large stake in the company and founder Ken Griffin taking a seat on E*Trade's board. The company, under Layton's direction, has made significant progress in its turnaround strategy, but market observers still speculate whether it may be more beneficial for the company to merge with another online broker such as TD Ameritrade ( AMTD) or Charles Schwab ( SCHW).

E*Trade seemed to have trouble solidifying a permanent successor to Layton after the broker announced in September that he would not be continuing on in his role. E*Trade had said in January that it had a "preferred candidate" in mind, but by early March discussions had supposedly broken down. Druskin said at an investor conference two weeks ago that the candidate was no longer in the running.

"E*Trade is an extraordinary company with a powerful brand and a compelling customer value proposition," Freiberg said. "Bob Druskin and Don Layton, his predecessor, did a terrific job leading the company through very challenging times and positioning the organization for success. I look forward to the opportunity to work with the company's talented management team to build on that momentum and help drive E*Trade's future growth and profitability."

Citigroup analyst Keith Walsh says the reverse stock split is positive for E*Trade shares. It removes several overhangs on the stock, including the likelihood that more institutional shareholders will begin buying shares as Citadel Investments will likely reassess its current large stake in the firm, he explains. Institutional investors, such as mutual funds, are typically restricted from buying into stocks under $5.

The reverse split could also "bring to light Citadel's ownership comfort level," Walsh writes in a note.

"Citadel has not been actively trimming their roughly 34% economic ownership positions during the CEO search as Mr. Ken Griffin holds a board seat at ETFC," the note says. "With the CEO overhang behind us, we expect to gain more clarity around Citadel's ownership goals."

"While the announcement of a new CEO may allow Citadel to begin selling shares, we view the potential for reengagement from institutional holders as well as clarity around leadership as positive incremental signs even if a potential takeout is pushed out further on the horizon," the note says.

Freiberg's first public commentary as E*Trade's CEO will likely be the broker's first-quarter earnings results in late April. Wall Street will likely be listening for thoughts on Freiberg's long-term growth strategy for the company as it looks to offset troubles from its banking subsidiary.

The company said last week that daily average revenue trades, or DARTs, fell 20% in February vs. a month earlier, reversing gains it experienced to start the year.

-- Written by Laurie Kulikowski in New York.

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