Citadel Can’t Win ‘em All

Chicago-based Citadel Investments is rising to the top of the alternative world by taking measured risks and spotting opportunities before others. They have had the golden touch, although the jury is out whether getting in bed with E*Trade is going to work. Citadel does pretty much everything well, but how well did they handicap their investment at E*Trade? I thought it was a no-brainer when they made it:

The outcome of several big investments last fall is still up in the air. For example, the Citadel Investment Group, a hedge fund known for buying distressed assets, purchased $3 billion of E*Trade’s asset-backed securities for $800 million, or 27 cents on the dollar, last November. Only time will tell if that trade, and Citadel’s 18 percent stake in E*Trade, pays off. New York Times

Citadel is clearly getting antsy over their stake in the company; but have yet to flex their muscles. But the new E*Trade CEO is not producing any guffaws in Chicago; his recent appearance on CNBC was roundly panned by Citadel's point man on their investment:

In the interview, E*Trade Chief Executive Donald Layton was less than clear about the amount of additional capital that the co might need to shore up its balance sheet. "If I told you that," Mr. Layton said, "I would have to kill you."

Mr. Layton might be having fun on his comedy tour of media outlets, but he is messing with the wrong people. Wake up, dude.

WSJ reports last month, the co’s investor-relations head called Dave Richards, an analyst at hedge fund Citadel Investment Group, to get his read....Mr. Richards wasn’t amused that Mr. Layton potentially left the door open for another round of dilutive capital raising, according to people familiar with the call. He asked whether Mr. Layton had been prepped before making his debut appearance. Mr. Richards’s question illustrates the frustration that some Citadel insiders are feeling about the slow progress at E*Trade since the investment firm injected $1.75 billion last November.

No doubt Citadel is sweating a bullets over this one; perhaps it will turn out to be a rare miscalculation by a group that has seen few over the years. They have gotten ntangled in a regulatory quagmire, but might have to start turning the screws on a company that seems to be flailing around. Competitors have been nipping at their heels; Citadel might eventually have to show these guys the way out of the morass.

We have been unfairly harsh on Citadel at times; but quite frankly they and their ilk will dominate Wall Street’s landscape a decade from now. And no doubt their efforts to provide a little old fashioned competition to the CME should be applauded; the Merc’s market cap is not sacrosanct. And if Citadel’s consortium can grab all or part of it god bless ‘em. That is how the game is played, go for it guys.

Their investment in E*Trade might not work out, and taking on the CME’s entreched interest seems like a herculean task, but the Citadel’s of the street are replacing the old guard like Bear Stearns. While you might have to check your personality at the door when you show up to work for Ken, but the organization’s structure and culture is laying to foundation for a long, successful run.

A Bear- type blowup is unlikely, and Citadel is likely to emerge from this business cycle stronger than when they entered it.

And we probably owe Ken an apology: I have no idea why Loeb calls Griffin a gerbil, or even what it means.

Maybe Dan is just jealous. In any case, he has gone radio silent.

Too bad, I sure miss his writing.

E*Trade’s Silent Partner, Whether It Likes It or Not
WSJ
-----------------------------------------------------------------------------------------------------------------------
The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Comments:

<< Back to main