Subprime-hit US firm E*Trade to exit India

Subprime crisis-hit US brokerage firm E*Trade is exiting India. Global banking major HSBC has proposed to acquire 73.21 per cent equity stake in IL&FS Investsmart Ltd, a leading retail brokerage house in India, for over Rs 1,000 crore. Under the terms of the agreements, HSBC will acquire a 43.85 per cent stake from E*Trade Mauritius Ltd, an indirectly wholly-owned subsidiary of E*Trade Financial Corporation, and an additional 29.36 per cent from Infrastructure Leasing and Financial Services Limited.

E*Trade, the online bank and brokerage based in the US, was facing a run on the bank scenario as customers panicked at E*Trade’s exposure to subprime debt and pulled billions of dollars out of their accounts. Since then, the firm has been engaged in a restructuring exercise, including sale of assets, to come out of the problems.

Though E*Trade’s average acquisition cost of stake in IL&FS Investsmart is not known, market circles said the company’s initial acquisition price could be in the range of Rs 50 a share. In 2006, the US firm acquired another 20 per cent stake for Rs 290 crore (at Rs 210 a share). The US firm even had plans to launch the E*Trade brand in India.

Both shareholders will receive a price of Rs 200 per share, leading to a total consideration of Rs 10,02.55 crore ($241.6 million). In addition, IL&FS will be paid Rs 82.01 crore ($19.4 million) as part of a three-year non-compete agreement. HSBC will also make an open offer to acquire up to 20 per cent of the remaining shares in Investsmart.