--E*Trade replaces CEO Freiberg with chairman on an interim basis
--Move reflects influence of chairman and revamped board
--E*Trade's stock had traded at multiyear lows in late July
(Adds information information on deleveraging plan, stock price move, CEO's background and comment from analyst)
By Brett Philbin
E*Trade Financial Corp.'s (>> E TRADE Financial Corporation) board dismissed Chief Executive Steven Freiberg and named its current chairman, brokerage industry veteran Frank Petrilli, to be the company's interim CEO while it conducts a search for a successor.
The board's decision to let Mr. Freiberg go came after it discussed his performance at a regularly scheduled meeting Wednesday that stretched late into the night, according to people familiar with the situation.
Mr. Freiberg, through E*Trade, couldn't be reached for comment.
The move--which comes as E*Trade's stock trades near multiyear lows and after the online brokerage decided not to pursue a potential sale of itself--signals the increasing influence that Mr. Petrilli and the restocked board, all brokerage industry veterans, have on the company.
The board was remade after Kenneth Griffin, founder and chief executive of E*Trade's largest shareholder, Citadel LLC, pushed last year for changes on the group and for E*Trade to explore a possible transaction. In November, though, E*Trade said it would remain independent.
More recently, the company unveiled a strategy aimed at strengthening the company's core brokerage business and de-emphasizing its banking products, a focus that Mr. Petrilli on Thursday said would continue.
In a statement, Mr. Petrilli called the brokerage business "the heart of the company," adding "the board believes it is an appropriate time to transition the role of CEO to a new leader to guide the company through the next phase of its evolution."
He said E*Trade realigned its bank to "exclusively focus on derisking and deleveraging while bolstering the company's enterprise risk management function. Additionally, we are focused on reducing costs with an enhanced focus on efficiencies."
Last month, on a conference call with analysts, E*Trade executives said the company would reduce its balance sheet by $5 billion to $10 billion and target roughly $50 million in expense cuts, offset somewhat by $10 million in investments, by the end of 2013.
Shares of E*Trade rose 6.1% to $8.51 on the announcement of the CEO change. E*Trade hit an intraday bottom of $7.08 on July 25, its lowest point since March 2009, but it has since rebounded.
In a research note to clients, JMP Securities analyst David Trone wrote that while several investment banks had recently recommended the best course for E*Trade was to remain independent, "the abrupt departure of Mr. Freiberg could suggest that the board could be warming up to the idea of a sale."
Mr. Petrilli's shift from the chairman position into the interim CEO role isn't a surprise to people close to the company. Mr. Petrilli, a former chief executive of TD Waterhouse, had an office at E*Trade's New York headquarters and was there on almost a daily basis, the people said.
In a memordanum to employees, Mr. Petrilli said that "once a permanent CEO is in place, I will return to my position as non-executive chairman of E*Trade."
Appointing Mr. Petrilli as chairman last winter, on its own, was notable given his prior ties to Toronto-Dominion Bank (TD, TD.T) which is a 45%-owner of TD Ameritrade Holding Corp. (>> TD Ameritrade Holding Corp.) and a rival online brokerage that often is cited by analysts and investors as a potential acquirer of E*Trade.
For more than four years, E*Trade has struggled to recover from bad bets its banking unit made on the U.S. housing market.
Mr. Freiberg, a former Citigroup Inc. (C) executive whose main experience was in consumer banking, led the online brokerage for just over two years. Under his leadership, E*Trade returned to profitability in 2011, posting its first annual profit in five years, though results were boosted, in several quarters, by the company injecting money into its net income from funds it used to cover loan losses.
E*Trade said its board formed a committee to oversee the search for a permanent CEO and will retain "a leading executive search firm to assist in identifying qualified external candidates to fill the position."
The composition of the board was a point of contention last year for Mr. Griffin, who had requested E*Trade replace two board members with independent directors. One of those board members, Michael Parks, didn't seek re-election at the company's most recent shareholder meeting in May.
The board has undergone a makeover in the past year as the company added Rodger Lawson and Rebecca Saeger, two former financial services executives with experience at two of E*Trade's main competitors, Fidelity Investments and Charles Schwab Corp. (>> Charles Schwab Corp).
The company said Mr. Lawson would serve as its lead independent director, while the committee of the board responsible for the CEO search would include Messrs. Petrilli, Lawson, Griffin, and Donna Weaver and Stephen Willard.
Mr. Griffin's aggressive push for E*Trade to sell itself came after the online brokerage was approached by Capital One Financial Corp. (>> Capital One Financial Corp.) about a potential bid in the fall of 2010, The Wall Street Journal previously reported. An offer never materialized, and Capital One ultimately didn't pursue it further.
Write to Brett Philbin at [email protected]
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