E-Trade Financial Corp.'s shares fell Thursday after its biggest shareholder announced plans to liquidate its entire position in the online financial services company.
THE SPARK: E-Trade said late Wednesday that Citadel Equity Fund Ltd. plans to sell the 27.4 million shares it owns in an offering that should close next week. E-Trade won't get any proceeds from the sale.
The hedge fund owns a 9.6-percent stake in E-Trade, according to FactSet.
THE BIG PICTURE: E-Trade has been struggling to recover from bad housing-related investments since the bubble burst, and has lost business as individual consumers pulled money out of the stock market. Faced with less trading activity, E-Trade has focused on managing costs and reducing risk.
In the past, Citadel encouraged a sale of E-Trade and the liquidation of its position is a reminder to investors that such a deal is not likely to happen soon.
THE ANALYSIS: Keefe, Bruyette & Woods analyst Joel Jeffrey downgraded his rating on the company to "Underperform" or sell, from "Market Perform," or hold, on the news that Citadel is selling its stake.
Jeffrey said that there is potential for E-Trade's stock to keeping falling, after a gain of more than 30 percent so far this year. The shares started the day more than 15 percent above his $10 price target.
He said the company's shares have traded down for prolonged periods following Citadel's past secondary offerings.
While the analyst did not believe a sale of the company was likely in the next year, he suggested that Citadel's sale could reduce the premium the company could garner for its business in the future, if it does sell.
SHARE ACTION: Shares fell 71 cents, or 6 percent, to $11.11 by midday Thursday.
Its shares have increased about 50 percent since November. They hit a 52-week high on Wednesday, closing at $11.82.
- Investment & Company Information