The sub-prime virus in the United States has hit home in a strange way in India, with some investors selling off juicy corporate pies to boost cash surpluses to heal wounds from the home loans that went bad. After the news that GE Capital is looking to find a strategic partner for its GE Money outfit, in the process shedding some stakes, comes the intent of brokerage E-Trade Financial Corporation to divest holding in IL&FS Investsmart Ltd.
According to investment banking sources, the company has sounded out potential buyers to divest its 44 per cent equity stake in the Indian venture – IL&FS Investsmart Ltd. Struggling to wipe out whopping losses caused by the sub-prime mortgage debts in the home country, E-Trade is looking at generating cash from its investments to bolster the balance sheet of the holding company, the sources said. Its original promoter — Infrastructure Leasing & Financial Service Ltd (ILFS) is holding 29.36 per cent stake in the company.
Struggling to come out from a financial mess, E-Trade’s market capitalization has eroded by over 80 per cent in the last six months to $1.7 billion on Wednesday from over $12 billion in June 2007. As per conservative estimates, the Indian investment would generate around $ 200 million, which is more than 10 per cent of the total market capitalisation of the holding company, the sources said.
After acquiring a 44 per cent stake in the IL&FS Investsmart, E-Trade has taken effective management control of the company. However, officially the management control still lies with the original promoters –ILFS.
IL&FS Investsmart officials refused to comment on the issues. “We are not aware of such development. In fact, we are in an aggressive expansion mode and looking at re-branding the company,” said a senior company official on condition of anonymity.
Last November, E –Trade’s chief executive officer Mitchell H. Caplan lost his job due to heavy losses caused by exposures in sub-prime mortgage lending and th then president and chief operating officer R. Jarrett Lilien was promoted as active CEO of the company. The company posted a hefty loss for the fourth quarter as the struggling discount brokerage dumped a book of risky investments at a steep discount. In one of its troubles, the company had sold a $3 billion portfolio of mortgage debt to Citadel Investment Group at a $2.2 billion loss.