February 24, 2011 / 6:19 PM / 9 years ago

UPDATE 1-Citadel in big E*Trade sale, hits broker's stock

* Hedge fund to sell nearly 24 million E*Trade shares

* E*Trade shares down 5.9 percent (Adds analyst, underwriter; updates shares)

NEW YORK, Feb 24 (Reuters) - E*Trade Corp’s (ETFC.O) largest stakeholder, hedge fund Citadel, is moving to sell nearly 24 million shares in the U.S. online brokerage, sending E*Trade shares down 5.9 percent on Thursday.

A Citadel Investment Group affiliate launched an underwritten offering, set to close March 1, that would reduce the Chicago-based fund’s stake to about 18 percent of E*Trade, from about 27 percent currently, according to a regulatory filing late on Wednesday.

The move accelerates Citadel’s previous reductions, and sent shares of E*Trade Financial Corp (ETFC.O) down 98 cents to $15.67 — its lowest level in a month.

“Shares of E*Trade could trade lower over the next few days if investors view that an acquisition of E*Trade is less likely in the near to mid-term due to Citadel’s sale,” Joel Jeffrey, analyst at KBW, wrote in a client note.

At its high-water mark, Citadel had about a 50 percent interest in E*Trade, which is seen by some as a takeover target given its healthy brokerage business.

The fund had injected capital into the brokerage to help it survive the 2007 mortgage-market crisis, which plunged E*Trade into the red and pummeled its shares. Citadel’s chief executive, Kenneth Griffin, sits on E*Trade’s board.

Goldman Sachs Group Inc (GS.N) is the underwriter of the share sale. (Reporting by Jonathan Spicer, editing by Maureen Bavdek and Tim Dobbyn)

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