Citadel-E*Trade: Calling the bottom?

E*Trade (ETFC) became the latest financial institution to line up an expensive and desperately needed capital infusion. The online trader, dragged down in recent weeks by fears about its toxic mortgage holdings, got $2.5 billion in new capital from a group led by hedge fund Citadel and asset manager BlackRock (BLK). Citadel will buy E*Trade’s entire asset-backed securities book for 27 cents on the dollar, and BlackRock funds will buy $1.6 billion worth of common stock and senior notes yielding 12.5%. E*Trade will also bid adieu to CEO Mitch Caplan, who will be replaced by president-turned-acting-CEO Jarrett Lillien. In lining up new cash, E*Trade follows in the footsteps of Citi (C) and Freddie Mac (FRE).

Citadel  is known as a savvy buyer of distressed assets, so the deal gives bulls another chance to say that a floor has been reached in the hard-hit financial sector. Still, it’s hard to ignore the fact that that was what many typically savvy observers suggested back in August, when Bank of America (BAC) took a big stake in Countrywide (CFC). Since then, Countrywide has lost more than half its value and most of the other financial stocks have tumbled as well. The sheer scale of the credit meltdown is making it difficult for anyone to predict what comes next.