E*Trade Financial Corp. rose to the highest level in two years after the online brokerage said its banking subsidiary will pay a $100 million dividend to the parent company and plans to make similar payments every quarter.
E*Trade gained 8.1 percent to close at $15.71 in New York for the biggest single-day gain since August 2011. The shares reached the highest level since July 2011.
“Today’s announcement reflects E*Trade’s significant progress on our capital plan, including de-risking and de-leveraging the balance sheet,” Matthew Audette, the company’s chief financial officer, said in a statement. “We look forward to building on this initial distribution over the coming quarters.”
E*Trade Bank received regulatory approval to pay the dividend to the parent this month, according to the statement. The company intends to seek approval for similar payments every quarter “over the near term,” it said in the statement.
New York-based E*Trade didn’t say what it will do with the dividend.
E*Trade posted more than $3 billion of losses related to bad mortgages following the collapse of the subprime market. The brokerage received a $2.55 billion cash injection in 2007 from Chicago-based hedge fund Citadel LLC, which this year sold off its stake after E*Trade rejected pressure to find buyers.
“This will free them up to eventually pay down debt and de-leverage over time,” Chris Allen, an analyst at Evercore Partners Inc. who has an equalweight rating on E*Trade, said in a phone interview. “You de-lever and you lower your interest expense, it should increase your earnings power and capital generation over the longer term. This is a next step in a series of positive steps we’ve seen recently.”
Standard & Poor’s revised its outlook to positive from stable today, citing the dividend news.
E*Trade shares have climbed 76 percent this year. They are still down 94 percent from their 2007 peak.