As long as you don't hurt yourself with the dilution, E*TRADE (NASDAQ:ETFC) has a plan to improve its financial state.

The discount broker announced a plan to beef up its capital structure yesterday. It's launching a secondary offering to sell $400 million worth of new stock. It's also offering more than $1 billion in zero-coupon convertible debt, in exchange for a good chunk of its interest-bearing notes.

Citadel Investment Group, the company's largest creditor and investor, is naturally on board. It plans to buy as much as 25% of the new stock and has committed at least $800 million for the debt swap. With Citadel's CEO joining E*TRADE's board last week, it would have been a shock if Citadel wasn't on "board" with the initiatives.

Mr. Market isn't happy, though. The shares were down 12% yesterday. Given the convertible feature of the new debt and the decision to flood the market with $400 million in freshly minted stock, the dilution will be massive.

Regardless, I still like the move. Standard & Poor's downgraded the broker's debt last month, and E*TRADE tipped off investors back in April on the need to raise capital. The stock offering will arm the company with greenbacks, while swapping out notes for zero-coupon bonds will help it preserve greenbacks by reducing its interest-expense exposure. This probably won't be enough to make E*TRADE profitable like rival discounters Charles Schwab (NASDAQ:SCHW), optionsXpress (NASDAQ:OXPS), and TD AMERITRADE (NASDAQ:AMTD), but it's a step in the right direction.

The company's metrics for May are inspiring. It closed out the month with 23,000 more brokerage accounts than it had at the end of April. Daily average revenue trades clocked in at 239,439, a 4% sequential improvement and a healthy 34% upgrade from May of 2008. Delinquencies in its loan portfolio are also improving.  

The only downer is a decline in the number of banking accounts, but that's been going on for awhile. When your flagship Complete Savings Account (CSA) vehicle goes from yielding a healthy 3.01% at the beginning of the year to an uninspiring 0.95% today, you're going to lose a fair share of yield chasers.

Then again, chunky distributions are hard to find these days. Even General Electric's (NYSE:GE) traditionally buoyant GE Interest Plus is sporting a mortal yield of as little as 2.38%. eBay's (NASDAQ:EBAY) once-competitive payouts for money parked at PayPal are now yielding a pedestrian 0.14%.

E*TRADE's online banking growth will return when yields spike higher. Between now and then, it's comforting to see the company clicking on the brokerage front and taking the appropriate -- though dilutive -- steps to improve its capital structure.

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Longtime Fool contributor Rick Munarriz believes in self-service gasoline pumps and self-service stock brokerages. He owns no shares in any of the companies in this story and 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.