Goldman Gains from E*Trade

Chidem Kurdas

Goldman Sachs funds made a bundle from E*Trade bonds this year. The bank’s credit managers sound positive on the beleaguered online retail brokerage, telling investors that E*Trade “has made substantial progress” in getting its asset base right.

E*Trade also benefited from the recovery of the mortgage portfolio that almost pushed it into bankruptcy in 2007 as the property market slumped and a financial crisis emerged.

At that juncture the company was saved from insolvency by a $2.55 billion infusion from Chicago-based hedge fund firm Citadel, which took an equity stake of 9.6%.

Goldman’s play is on E*Trade short-term debt. Both the bonds and the stock performed strongly this year (compared to relevant indexes).

When Citadel said it would unload what remained of its interest in E*Trade by late March, the stock dropped sharply. But E*Trade has more than rebounded—55% in the past six months since June, compared to a 17% gain in the technology-heavy Nasdaq index.

Looks like Citadel chief Ken Griffin sold too soon. The shares fluctuated a bit above $11 at the time Citadel was selling; nowadays E*Trade fluctuates around $18.

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Tags: Citadel, E*Trade, Goldman Sachs, Ken Griffin, Nasdaq