March 3 (Bloomberg) -- E*Trade Financial Corp., the online brokerage that was the worst-performing stock in the Standard & Poor's 500 Index last year, plans to name former JPMorgan Chase & Co. Vice Chairman Donald Layton as chief executive officer.

Layton, 57, will assume the post immediately, said a person with knowledge of the decision, who declined to be identified before the appointment is announced later today. Layton joined E*Trade's board in November when the New York-based company ousted Mitchell Caplan as CEO and received a $2.55 billion cash infusion from hedge fund Citadel Investment Group LLC.

E*Trade has been battered by losses from bad loans after the collapse of the U.S. subprime mortgage market. The company's market value plummeted 81 percent during the past 12 months to $2 billion. E*Trade rose 6 cents to $4.32 in German trading.

``The company has been doing poorly,'' said Jacques Porta, who helps oversee $180 million at Ofivalmo Patrimoine in Paris and holds no E*Trade shares. ``The idea is to change management.''

Layton, who retired from JPMorgan in 2004 after 29 years, told the Wall Street Journal in an interview late yesterday that he would consider a sale of E*Trade if it made sense for shareholders. He said a sale of the home-equity portfolio isn't an option right now because of the markets.

Jarrett Lilien, E*Trade's acting CEO since November, will remain at the company as president, said the person, who declined to be identified.

Caplan's strategy of building E*Trade's banking unit by tripling loans backfired as borrowers fell behind on payments and U.S. home prices declined. Since Caplan's departure, E*Trade has increased spending on customer service and marketing, including $4 million for advertisements during the Super Bowl.

The initiative helped E*Trade stem client defections and increase customer accounts by 0.3 percent in January to 4.7 million. E*Trade is the fourth-largest discount brokerage in the U.S., with about $174 billion of assets.

To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net.

Last Updated: March 3, 2008 06:37 EST