Citadel Ups Stake In E*Trade, Agrees To Debt Swap

Jun 19 2009 | 1:04pm ET

Citadel Investment Group has bought nearly $100 million in new E*Trade Financial Shares, bringing its stake in the troubled brokerage firm to 17%.

Chicago-based Citadel, which was already the largest shareholder—and creditor—of E*Trade, had committed to buying between $50 million and $100 million of the new shares. It already owned a 16% stake in the firm. E*Trade sold 435 million shares of common stock this week as part of its bid to shore up its financial position.

Federal regulators in April ordered E*Trade, whose banking unit has been battered by the mortgage crisis, to raise more capital and cut its debt. To the latter’s end, the firm also plans a bond exchange program, beginning next week, swapping at least $1 billion in new, zero-coupon convertible bonds for bonds due in 2011 and 2017. Citadel, which owns more than 70% of E*Trade’s outstanding high-yield debt, plans to exchange at least $800 million of its bond holdings, as well.

Last week, Citadel chief Kenneth Griffin joined E*Trade’s board of directors.

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