NEW YORK (TheStreet) -- E*Trade (ETFC) has been in a hole for nearly four years, and the analyst who dug the hole may now be in a position to throw it a rope.
Prashant Bhatia, dealmaker for E*Trade's most likely merger partner TD Ameritrade (AMTD) -- is a former Citigroup (C) analyst that began questioning E*Trade's balance sheet and initiated years of turmoil for the company.
The online broker's shares plummeted in November 2007 after Bhatia, then an analyst at Citi, argued that E*Trade's mortgage-related investments could trigger a bank run, The New York Times reported at the time.
Even after E*Trade secured a $2.55 billion investment from Chicago hedge fund giant Citadel, Bhatia maintained his sell rating on E*Trade shares.
Flash forward to last week, when an exasperated Citadel, now E*Trade's largest shareholder, wrote a stinging letter to the online broker's board of directors, urging a sale of the company.
That letter revived longtime speculation that TD Ameritrade would snap up its troubled rival. TD Ameritrade has publicly expressed an interest in a possible deal for E*Trade, and, according to a report in The Wall Street Journal, will discuss the matter at a board meeting on Tuesday.
Thanks in part to Bhatia's bearish analysis, Ameritrade ought to be able to demand a low price. So it is perhaps only fitting that Bhatia has joined Ameritrade as its chief dealmaker.
According to an Ameritrade spokeswoman, Bhatia is now in charge of business development at Ameritrade, having joined the company in March 2009. In that role, he leads a team that will provide a detailed analysis to Ameritrade CFO Bill Gerber about whether Ameritrade should acquire the company Bhatia helped trash as an analyst.
The Ameritade spokeswoman said Bhatia wasn't available for an interview, and she decl
"Citadel LLC, the largest shareholder in E*Trade Financial Corp. (ETFC), is selling the rest of its equity stake after the online brokerage rejected pressure to find buyers and the shares rallied 32 percent this year.
The Chicago-based hedge fund run by Ken Griffin will sell about 27.4 million shares through an affiliate, Citadel Equity Fund Ltd., based on a release from New York-based E*Trade. The shares fell 4.8 percent to $11.25 as of 6:36 p.m. in New York.
Citadel in 2011 asked E*Trade to hire a bank to review strategic alternatives and take immediate action to maximize shareholder value after “catastrophic losses” that had driven the shares down 97 percent since 2007. The hedge fund invested $2.55 billion in E*Trade in November 2007 to help the company survive mortgage losses.
While E*Trade refused to put the company up for sale last year, it ousted Chief Executive Officer Steven J. Freiberg in August and named Citadel’s Griffin to the search committee. Freiberg was replaced by former Barclays Plc executive Paul Idzik in January as the company’s fifth top executive in five years.
The sale represents about $323.9 million, based on today’s closing price of $11.82. E*Trade won’t get any proceeds from the sale, according to today’s release. The offering of stock at market price is expected to close by about March 19. "