E*Trade Financial Corp named Steven Freiberg as its new chief executive and said it plans a reverse stock split, betting a former Citigroup Inc executive with consumer experience but a limited online brokerage resume will help it emerge from lending problems.

Freiberg, 53, will take the reins from interim Chief Executive Robert Druskin on April 1, capping the search for a successor to former chief Donald Layton.

E*Trade previously said Druskin, also a former Citigroup executive, was not a CEO candidate, and that its preferred choice had fallen out of consideration.

Analysts said the moves, including the 1-for-10 reverse stock split, could stoke takeover speculation that has dogged E*Trade since the prospect of bankruptcy loomed a year ago.

The company's shares dropped as much as 7.6 percent just after the opening bell on Monday but then rebounded. They were down 3.2 percent at $1.52 by early afternoon, with traders saying they expected more volatility to come.

Some people could have thought it's less likely they would just roll into a deal now that they've named a CEO, said Sandler O'Neill analyst Richard Repetto. Other observers said the reverse split could clear the way for a merger.

The resulting higher share price will probably reduce the churn on their stock, said Aite Group senior analyst Adam Honore. I still hold that they're ripe for a takeover.

Freiberg is the former co-CEO of Citigroup's global consumer group and former head of the bank's credit card unit. As far back as 1992, he held top positions at the retail broker dealer Citicorp Investment Services, experience that E*Trade -- a pioneer online broker -- highlighted Monday.

He's a very quick study, he's exceptionally smart, and he's been around the brokerage business his whole life in one way or another, Druskin said of his long-time Citigroup colleague, in an interview.

His experience is not as specific to the online brokerage business as if we hired the guy that runs it out of (TD) Ameritrade, but Steve brings a lot of things that others don't, Druskin said. I think the entire package is about as good as you can get for this job.

Freiberg retired from Citigroup on July 31.

He will earn an annual base salary of $1 million and is eligible for a $3 million cash performance bonus under the four-year contract, according to an E*Trade regulatory filing. His severance would jump under a merger.

OPTICS OF A REVERSE SPLIT

The reverse split could help the optics of a company that has logged losses the last 10 straight quarters, and whose shares were worth more than $25 in 2007, before loan losses in its mortgage portfolio set in.

A low price is just a reminder of the fact that it was in the danger zone, said Forrester Research analyst Bill Doyle. A reverse split puts some distance on that recent history.

E*Trade is not expected to get back into the black until the third quarter this year, when analysts on average expect a profit of 2 cents per share, according to Thomson Reuters I/B/E/S. The split would also give the perception of more robust per-share earnings, said Repetto.

E*Trade said the reverse stock split, which requires shareholder approval, would decrease the number of authorized common shares to 400 million. Shareholders will vote on the split at the May 13 annual meeting.

The reverse split is a logical next step for the company as we complete our financial and managerial restructuring, the company said.

Under regulatory pressure, E*Trade aggressively raised capital last year with the backing of major stakeholder Citadel Investment Group, and it is showing signs of recovery. In December it announced plans to exit local market trading outside the United States.

The company has been increasingly rumored in recent months to be a takeover target, with larger rivals TD Ameritrade Holding Corp and Charles Schwab Corp seen as possible suitors.

In a statement, Freiberg said he would build on current momentum and help drive E*Trade's future growth and profitability. E*Trade said the new CEO was not available for an interview.

Given his experience, Freiberg should understand consumers, said Forrester's Doyle. E*Trade has always risen or fallen on their ability to be a consumer-focused organization, he said. Whether they've done it all the time is up for debate, but that's their heritage.

(Reporting by Jonathan Spicer; Editing by John Wallace and Steve Orlofsky)

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