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Why the E*Trade Shorts Have It Wrong

There will be forthcoming debt-for-equity swaps. So more dilution is coming, but the question is whether or not that actually increases the value of the shares because it bolsters capital and takes out high cost debt.

Citadel is already making a killing on this deal because in addition to the cheap MBS portfolio and shares, they are running all of Etrade's option trades through their clearing business. Also, look at all the insider trades being made on ETFC by Citadel...they are clearly being active in trading the shares and lord only knows what they are doing on the derivatives side to either hedge or create upside. It would appear that Citadel still has a large stake in the performance of the company over time via the common, but we just don't know for sure given that they have their hand in many cookie jars here. My personal guess is that they DO expect to make money on the equity but it's the icing on the cake.