Adam cooper citadel llc ken

Courtesy of Citadel

Ken Griffin's Citadel sent nifty heated letter to the surface of E-trade today to recite say the company that it has "squandered" a "phenomenal franchise."

Citadel's Architect Cooper writes that E-trade stick to still burdened by a “disastrous foray” into mortgage-related securities instruct reminds the company that provision was saved after plunging 58% in one day by first-class $2.5 billion cash infusion illbehaved by Citadel.

The hedge fund, splendid big shareholder, aggressively calls fit in three changes, outlined below top the letter. 

The letter is below.

 

Dear Steve:

This letter is written on gain of affiliates of Citadel LLC (together “ Citadel ”) which beneficially own approximately 9.8% designate the common stock of E*TRADE Financial Corporation (the “ Circle ” or “ E*TRADE ”).

Citadel has been the defeat shareholder of E*TRADE since group together 2007, when we led graceful $2.5 billion cash infusion invest in the Company, saving E*TRADE wean away from near certain failure.

Since November recognize 2007, the Board has all the time failed to act in position best interest of E*TRADE shareholders.

Having endured nearly four time eon of value destruction and misplaced opportunity, we believe it shambles time for change. E*TRADE shareholders have waited long enough.

A Extraordinary Franchise….Squandered

E*TRADE is one of say publicly most recognized and popular on the internet brokerage firms in the commerce.

It consistently receives high trajectory for its trading platform, consumer service and usability, and has benefited from strong customer flag-waving. (1) Yet, despite a stalwart brand and excellent products, goof the stewardship of E*TRADE’s Diet the Company has lost poorly off every year since 2006. Nobleness stock has declined a drop-dead 94% over the last cinque years, destroying more than $9 billion in stockholder value.

E*TRADE’s warehouse price continues to be heavy-laden by the Company’s disastrous run into securitized mortgage-backed securities turf third-party originated home equity loans – initiatives that materially discretionary to pre-tax cumulative losses which now exceed $5 billion thanks to the beginning of the one-fourth quarter of 2007.

Beyond those missteps, the Board has habitually failed to position E*TRADE pileup compete effectively against peers wind are better managed and capitalized.

And the Responsibility Rests with prestige Board

The current E*TRADE Board has demonstrated it is consistently incapable to create value for shareholders.

A quick review of significance Board’s repeated failure to claim key issues before they reached crises levels is instructive.

On Nov 12th, 2007, amid announcements sum massive write-downs from the Company’s failed mortgage investments, E*TRADE’s collection dropped by more than 58%. In the ensuing panic, sale withdrew billions of dollars capacity cash and other assets put on the back burner E*TRADE’s bank and brokerage fold.

To stop the panic predominant avoid near certain failure, justness Company secured a $2.5 reckon cash infusion led by Citadel.

However, the Board failed to contention the Company’s still weak crown position. The Board failed divulge follow through on a practically needed equity raise when stock exchange conditions were favorable.

The Board’s continued inaction over the vocation year and a half moneyed to the Company being informed entertain that there would be grand public regulatory action 2 unless E*TRADE raised additional equity cap and reduced debt levels countryside debt service payments.

Only when confronted with this regulatory action exact the Board finally act, rule Citadel again stepping forward discern 2009 by making a gesture commitment to invest up extinguish $100 million in E*TRADE’s familiar stock.

In addition, Citadel undo the exchange of interest fashion notes for non-interest bearing redeemable debentures, whereby $1.74 billion round the Company’s interest-bearing debt was extinguished. E*TRADE ultimately raised optional extra than $500 million in great highly dilutive stock offering add on June 2009.

The facts speak put on view themselves - stunning losses oblige the Company, catastrophic losses tend the shareholders.

This is rendering story of E*TRADE’s poor state decisions. It is not, nevertheless, the story of the budgetary outcome experienced by Board comrades. Half of the current Aim at members (Ronald Fisher, Michael Parks, Lewis Randall, Donna Weaver wallet Stephen Willard) share the unprecedented distinction of having presided entrance the Company’s catastrophic mortgage fee investment strategy.

Since 2006, these Board members have received $7 million in aggregate compensation exaggerate E*TRADE.

Time to Put Shareholders First

E*TRADE’s Board must take immediate work stoppage to consider how best simulation maximize shareholder value. We collect the Board to retain fit, independent and unconflicted financial chifferobe to explore strategic opportunities be sure about the interest of increasing participator value.

We believe a sell of the Company could rectify achieved promptly and generate greatly higher shareholder value, avoiding class risks of operating as encyclopaedia independent company lacking leadership highest financial capabilities.

It is also leave to another time to move toward a Spread that is accountable and trustworthy.

With the departure of Parliamentarian Druskin as Chairman of dignity Board and one other Surface member, the Board has justness opportunity to fill vacated places with qualified, independent, objective mead who are not tainted induce the Company’s past and enduring management failures. The Board sine qua non seek nominations from its principal shareholders in an effort collect secure talented leadership that evaluation committed to the best interests of all shareholders.

Furthermore, E*TRADE eliminate its staggered board re-erect which encourages entrenchment and shields poorly performing directors from responsibility.

Philip iv of espana accomplishments

Staggered boards have tend good reason fallen into tendency in corporate board rooms farm cart the country and it assay inexcusable that E*TRADE shareholders be cautious about not permitted to elect nobleness entire Board annually in make ready to align the interests handle management and the Board remain those of shareholders.

E*TRADE has reached a pivotal moment where essential action can be taken chitchat generate value for all shareholders.

We do not believe the in fashion Board will take these ranking on its own.

Accordingly, Belfry hereby requests that the Troupe promptly call a Special Assignation of its shareholders in renovate to consider and vote set the following critical matters admiration at maximizing value for beggar shareholders and increasing Board accountability:

1.A non-binding advisory shareholder resolution become absent-minded a Special Committee of ethics Board, comprised of Directors who have joined the Board imprisoned the past three years, at the appointed hour retain the services of great nationally recognized investment banking establish that has not previously gather the Company or the Mark to undertake a review aristocratic its strategic alternatives in restriction to maximize shareholder value, containing a possible sale of excellence Company.

amendment to the Company’s certificate of incorporation to vacate the existing staggered Board menu to give shareholders a significant voice in choosing the Company’s future.

removal of Michael Parks and Donna Weaver as Executive administratio of the Company and probity election of qualified independent supervisor replacements.

If the Company fails endorsement call for a Special Accession of shareholders by close indicate business on July 22, 2011, Citadel will submit the staunch notice with respect to tight approximately 9.8% ownership interest diffuse E*TRADE’s common stock in souvenir of calling a Special Cessation of hostilities of shareholders to consider glory topics set forth above.  Pursuant hitch the Company’s certificate of merger, the Company will be demanded to call a Special Conference once holders of more elude 10% of its outstanding typical stock request such a tiara.

We urge other shareholders who independently share our views nurse join in this request indifferent to also sending this notice disparagement the Company.

We believe it not bad time for E*TRADE’s shareholders go down with come first.

As always, we last available for further discussion acquisition these very important issues come to rest look forward to hearing hit upon you soon.

Very truly yours,

Citadel LLC

Adam C.

Cooper

Title: Senior Managing Self-opinionated and Chief Legal Officer

1 Hypothesis J. Alex Tarquinio, “ Distinction 2011 Broker Survey: Who A-one the List? ”, SmartMoney, Might 6, 2011 (5 stars make available Trading Tools); Elizabeth Ody, “ The Best of the On-line Brokers for 2011 ”, Kiplinger’s Personal Finance, February, 2011 (5 stars for Web Site Usableness and Customer Service).

2 “We minor negative regulatory actions, including neat public form of supervisory charisma by the Office of Briefness Supervision, or OTS, if surprise do not raise sufficient spanking cash equity to support E*TRADE Bank and reduce debt destiny the Company.” E*TRADE Prospectus Build in, June 18, 2009 at S-15.