E*TRADE Baby Has a New Daddy

The prolonged search for E*TRADE's (Nasdaq: ETFC  ) new CEO is over. Former Citigroup (NYSE: C  ) exec Steven Freiberg will begin leading the discount broker next month.

This has been a hard corner office to fill. When former CEO Don Layton announced that he would retire by the end of 2009, the hunt for a new leader began. As the year inched to a close, board member Robert Druskin -- another former Citigroup exec, by the way -- was tapped as "interim" CEO.

Absent a permanent CEO, buyout speculation ran rampant. It isn't just that E*TRADE would be a logical fit for rivals TD AMERITRADE (Nasdaq: AMTD  ) and Charles Scwhab (Nasdaq: SCHW  ) or any full-service broker or banking institution that wants some skin in the discount game. If E*TRADE was having problems filling a plum turnaround role when many financial executives were being displaced elsewhere, you had to wonder whether prime candidates were avoiding a job that could prove to be temporary if the company is acquired later this year.

Freiberg's signing won't necessarily squash the buyout talk, but it will lower the chatter by a few decibels. E*TRADE also will be seeking shareholder approval for a 1-for-10 reverse split, making it more likely that the Web-based broker will try to bounce back into investing favor on its own.

Reverse splits are a thorny subject. Just ask Sirius XM Radio (Nasdaq: SIRI  ) . The satellite-radio operator has held back on issuing a shareholder-approved reverse for months, and it may resort to the move only if it risks exchange delisting.

E*TRADE's stock isn't risking Nasdaq's boot. It has been consistently trading above $1 for more than a year. However, AIG (NYSE: AIG  ) and Coeur d'Alene Mines (NYSE: CDE  ) also went the reverse-split route last year, when their stocks were perched just over the $1 mark. They are trading slightly higher today, so let's not be so quick to write off a reverse as a death sentence.

A 1-for-10 split at today's prices would propel E*TRADE's sticker price to the teens, where TD AMERITRADE and Schwab are trading. Despite Freiberg's pedigree after his 30-year career at Citigroup, the stock was unlikely to trade in the teens organically, absent a swift return to profitability or a total exorcism of its iffy loan exposure.

E*TRADE's stock opened lower on the news of the CEO appointment and the reverse split, but investors who are in this for the long haul should probably be applauding the moves as the discounter continues to take baby steps back into Mr. Market's good graces..

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Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990, but he owns no shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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