E-Trade Financial prices public stock offering

The struggling online brokerage and bank looks to raise capital to pull itself out from under mortgage-related loan losses.
DEC 10, 2009
E-Trade Financial Corp. said Friday that it priced a public offering of 435 million shares of common stock at $1.10 per share as the struggling online brokerage and bank looks to raise capital to pull itself out from under mortgage-related loan losses. In late April the company said that the Office of Thrift Supervision had asked it to raise capital quickly after it reported a larger-than-expected first-quarter loss and boosted its reserves for bad loans. The money from the stock offering, along with a debt exchange offer, could help E-Trade lower its debt and buffer itself further from loan losses. The company anticipates gross proceeds from the offering of $478.5 million, prior to underwriting discounts and commissions. On Wednesday E-Trade announced it would sell $400 million of its stock. E-Trade said the offering's funds will provide additional equity capital and be used for other corporate purposes. The company was hit hard by the recession and collapse of the real-estate market as the value of investments, especially those tied to residential real-estate loans, plummeted. E-Trade gave the offering's underwriters the option to buy up to an additional 65 million shares to cover any overallotments. A Citadel Investment Group LLC affiliate bought 90.9 million additional shares in the offering, giving it an approximately 17 percent stake in E-Trade. Citadel Investment Group is E-Trade's largest shareholder. E-Trade also plans to exchange more than $1 billion in outstanding debt, with the capital infusion from the stock offering and debt exchange being used to help its banking subsidiary — which has accounted for the bulk of the losses. The stock offering is targeted to close Wednesday. E-Trade said earlier this week that once the offering closed it would offer to exchange more than $1 billion in outstanding debt. Citadel will exchange at least $800 million in debt as part of the program. The debt exchange allows E-Trade to lower its debt by eliminating the interest payments that are tied to it. In premarket trading, E-trade shares declined nearly 15 percent to $1.22 from Thursday's close of $1.43.

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