NEW YORK (AP) — Discount broker E-Trade Financial Corp. disclosed yesterday it is getting a $2.5 billion capital infusion from a group led by Citadel Investment Group and said Mitchell H. Caplan has stepped down as its chief executive.

Shares of the financial services company rose more than eight percent in morning trading.

Citadel also acquires E-Trade's troubled asset-backed securities portfolio as part of the deal and will get to nominate a representative to the E-Trade board.

E-Trade said the deal shores up its balance sheet, allowing the company to focus on its core retail business, and provides additional capital to manage credit risk.

President and chief operating officer R. Jarrett Lilien will become acting CEO while a search starts for a permanent replacement to Caplan.

"E-Trade's core business is strong," Lilien said in a statement. "This transaction with Citadel is not only a major vote of confidence from one of the world's leading financial institutions but also allows us to directly address customer concerns and get back to our real business, providing industry-leading products and services to our customers."

Its shares rose 45 cents, or 8.5 percent, to $5.73 in morning trading yesterday. They have traded in a 52-week range of $3.46 to $26.08.

The company's stock has been on a roller-coaster ride in recent weeks.

It shares sank when it disclosed it was taking a big writedown on a portofolio of securities backed by mortgages whose value has plummeted due to rising defaults and would miss it earnings guidance for the year.

But its shares turned higher last week on speculation that E-Trade would sell itself, possibly to chief rivals TD Ameritrade Holding Corp. or Charles Schwab Corp.

E-Trade also said board special adviser Donald H. Layton will become chairman, succeeding George A. Hayter who will remain a director. Layton retired in 2004 after 29 years at JP Morgan Chase and its predecessors, serving most recently as vice-chairman.

Caplan will continue as an adviser on transition matters through the end of the year.

The Citadel-led investment includes immediate funding of about $2.4 billion, with the remaining $150 million expected to fund by January 15.

Citadel is buying E-Trade's entire asset-backed securities portfolio, including collateralised debt obligations, for $800 million in cash.

E-Trade said it will take a $2.2 billion charge as a result of the sale of the asset-based securities porfolio and will record a larger-than-expected fourth-quarter loss on its home equity loan portfolio that will result in an ending allowance of over $400 million.

The deal removes assets with the greatest market risk from E-Trade's balance sheet. E-Trade has now divested itself of its $3 billion asset-backed securities portfolio, including CDOs and second-lien securities.