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E*Trade CEO Leaves Abruptly

E*Trade said Friday the company's Chairman and Chief Executive Officer Christos Cotsakos has resigned, and will be succeeded by President and COO Mitchell Caplan.

While the company gave no reason for Cotsakos' sudden departure, effective immediately, there is speculation that Cotsakos' lavish pay package and corporate governance issues were hanging over the diversified online broker.

E*Trade issued its quarterly earnings report on Wednesday and while the company said its profits were $30 million for the quarter, it issued a warning about likely weakness in future financial results.

"Over the last year, several issues have surfaced at E*Trade, and whether it was Cotsakos' pay package, or other corporate governance issues, it has been a big overhang on the stock. While Cotsakos restructured his pay package and forgave in excess of twenty-five million dollars, a lot of investors and analysts still had issues with that," said Todd Halky, analyst at Putnam Lovell NBF. He said his company has an "outperform" rating on E*Trade shares, and expects the stock will rise to above $6 per share in the next twelve months; it's currently trading below $5.

Halky said Cotsakos was more of a "visionary" and was "excellent at developing brand awareness," but he is encouraged by the change in leadership at E*Trade. Cotsakos is credited with successfully diversifying E*Trade from a pure online brokerage into the mortgage and banking businesses, at a time of low interest rates and a flurry of home refinancings.

"E*Trade has done an excellent job creating a franchise and building a strong brand, and it's the only full service financial portal, as it has moved beyond online brokerage into the mortgage and banking markets," Halky added.

In addition to replacing Cotsakos, E*Trade also said it's naming George Hayter to be the lead director of its board. Caplan will now take over the helm at E*Trade and Halky said he was pleased about his appointment. Last year, Caplan had been named E*Trade's president and chief operating officer, after joining the company back in 2000.

But it was Cotsakos' pay package that may have led to his undoing. In 2001, Cotsakos' compensation amounted to $60 million, and while he agreed to give back $21 million in May 2002, in a dismal market environment and heightened investor concern about corporate governance, the issue of Cotsakos' pay didn't seem to go away.

Despite Cotsakos' unusual payback of millions in his salary for 2001, his compensation package for 2002 was close to $45 million, at a time when the company lost millions of dollars and saw its stock price plummet. E*Trade shares in April 1999 were over $70, but have fallen steadily, and from around $10 in spring 2002 to less than $5 in 2003.

Several published reports say Cotsakos was fired, and with his resignation as Chairman and CEO, he also resigned from the company's board of directors.

According to SEC documents, Cotsakos still owns close to 9 million shares of E*Trade, but he will not be appearing in any Super Bowl commercials this year. Cotsakos, a Vietnam veteran, was featured in an E*Trade Super Bowl commercial, accompanied by a chimpanzee.