Is Citigroup Failing? 10 comments
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Citigroup (C), along with Band of America (BAC) and JPMorgan (JPM) have been setup by the government as too big to fail. Yet the price action on the Citi stock indicates that the market is getting very close to declaring Citi a failure. Look back to the price action of Bear Stearns preceding its failure. If we soon get massive withdrawals by concerned borrowers, the game is up. No one wants that.
Yet, the Fed and Treasury must be in a panic trying to think through how they deal with this situation. There is not another US bank that could buy Citi. Nor is it likely to find a foreign buyer, particularly one that would be acceptable to US authorities. Bankruptcy probably really is unthinkable for Citi.
Therefore the government faces the real possibility that in the next few days it will have to decide to take on Citi. We already have the Conservatorship of Freddie Mac and Fannie Mae, and the “sort of” US guarantee of their liabilities. Rates on their paper is going up and a sort of guarantee for Citi is not likely to be well accepted by the market place. Outright nationalization brings a lot of problems beyond Citi. BoA is really not that far behind Citi in terms of price action of the stock and the further potential for problems with housing and investment banking.
And while JPMorgan is viewed as much better than either Citi or BoA, the credit Default Swap (CDS) problem has not really exploded which will expose all the vulnerabilities of JPMorgan. I do not think America is ready to nationalize three, or even one, of the largest banks. But what alternatives do the Fed and Treasury have if we have a run on the bank? Regrettably, this now seems to have a meaningful possibility of happening. This writer sees real and practical solutions for the automotive industry problems. However, it seems possible that in the coming days that Citibank problems may move GM and the automotive companies off the headline page with a very much more complex problem.
Disclosure: no position
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This article has 10 comments:
Bear speculation in Citi is brainless and just that. It is no more an indication of underlying anything than $147 oil was an indication that oil was about to run out. Citi has operating cash flow of $45 billion per quarter, positive, in the worst financial environment in our lifetimes. It is simply calling in debt by allowing loans to run off, forcing an epic cash flow in its own favor, and using it to retire debt. It isn't going to go bankrupt doing this. It is going to satisfy creditors and improve liquidity, to any degree anyone wants.
When they decide they are safe enough, they aren't going to need to ask anyone's permission on earth. They can just buy the rest of the common and go private out of 3 month's cash flow, and thumb their noses at the short sellers and CDS speculators all day, every day.
Citi's losses, for the most part, are paper...not cash. The securities on their books are not worthless, but rather not tradable in the current environment (on that note, what is?! Basically, nothing that doesn't start with "T"). So FASB makes them write the assets down on their books.....but the true intrinsic value hasn't dropped that much.
I could be wrong, and only time will tell, but I don't believe for a second that the true book value of Citigroup is reflected in its current stock price. I think it has been tremendously oversold. [Yes, I am long Citi....currently VERY LONG].
You want to solve the ills of the stock market? Here's a few starters:
1) reinstate the uptick rule
(it worked as intended since 1929, but some well-lobbied SEC knuckleheads erased it last year).
2) aggressively enforce the prohibition of "naked" short selling
(you should never be allowed to short stocks that don't exist - can you say "fraud"?)
3) disallow the purchase of CDS/credit default swaps by investors who do NOT have an insurable interest in the company
(I can't purchase hazard insurance on your home; that's illegal, so why should it be okay to buy default insurance in a company of which I have NO insurance interest? It shouldn't!)
many stocks are wrongly valued..my point is, do really know the value of citi or aig, they themselves can't tell you what they have..
please no more theorys or baseless fears that game is for hedge funds.. put pen to paper and tell me you for a fact know they are bk..
On Nov 20 06:12 PM oldlures1 wrote:
> The falling share price is NOT a reflection of failed fundamentals,
> nor it is a reflection of a "problem". The contrary, it is purely
> a reflection of bear raiding. Elimination of the uptick rule, coupled
> with regulated naked shorting and the dubious incentivizing of CDS's
> (i.e. I can buy insurance in something of which I own NO insurable
> interest), has produce an environment for unethical practice and
> bear raiding, not to mention provided the tools by with the former
> is propogated.
>
> Citi's losses, for the most part, are paper...not cash. The securities
> on their books are not worthless, but rather not tradable in the
> current environment (on that note, what is?! Basically, nothing that
> doesn't start with "T"). So FASB makes them write the assets down
> on their books.....but the true intrinsic value hasn't dropped that
> much.
>
> I could be wrong, and only time will tell, but I don't believe for
> a second that the true book value of Citigroup is reflected in its
> current stock price. I think it has been tremendously oversold.
> [Yes, I am long Citi....currently VERY LONG].
>
> You want to solve the ills of the stock market? Here's a few starters:
>
> 1) reinstate the uptick rule
> (it worked as intended since 1929, but some well-lobbied SEC knuckleheads
> erased it last year).
> 2) aggressively enforce the prohibition of "naked" short selling
>
> (you should never be allowed to short stocks that don't exist - can
> you say "fraud"?)
> 3) disallow the purchase of CDS/credit default swaps by investors
> who do NOT have an insurable interest in the company
> (I can't purchase hazard insurance on your home; that's illegal,
> so why should it be okay to buy default insurance in a company of
> which I have NO insurance interest? It shouldn't!)
GS=$20B
MS=$10B
Citi=$25B who will marry who??
Thu Nov 20, 2008 10:02pm EST Email | Print | Share| Reprints | Single Page | Recommend (0) [-] Text [+]
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NEW YORK (Reuters) - Citigroup Inc lost more than one-quarter of its market value on growing worries over whether it has enough capital to withstand billions of dollars of potential losses and despite new support from its largest individual investor.
The second-largest U.S. bank by assets is looking at options now, including a sale of parts of the company or a merger with another firm, after its stock fell 50 percent this week, a person familiar with the matter said on Thursday.
Discussions so far have been internal, and some options --such as entering into a merger where other executives end up running the company -- are unpalatable to managers at Citigroup, the person said. The bank's board of directors is set to meet on Friday, and Morgan Stanley is not considering a possible bid, the Wall Street Journal reported.
Citigroup did not comment on the report, repeating that it has a "very strong capital and liquidity position" and is focused on a strategy that will generate benefits "over time." Morgan Stanley did not immediately return a call for comment.
Earlier Thursday, Saudi Prince Alwaleed bin Talal said he plans to increase his stake in Citigroup to 5 percent from less than 4 percent, calling its shares "dramatically undervalued."
Alwaleed expressed "full and complete support" for management, including Pandit, who said this week the bank will slash 52,000 jobs and 20 percent of expenses.
Investors were unimpressed, and drove the bank's shares below $5, a level not seen since 1994. The market value of Citigroup has fallen $48.7 billion this month alone.
Citigroup is not seeking any government financial aid, and is not seeing any unusual business activity, a person close to the bank said.
But government aid may have to be part of any deal for Citigroup, investors said. Raising capital, whether through a share sale or selling businesses, would be difficult in the current environment.
Citigroup "will get bailed out, and that's another unfortunate strain on the U.S. government," said Saj Karim, an investment adviser at Cannacord Capital in Waterloo, Ontario.
The government may look to augment the $25 billion it injected last month from a $700 billion industry rescue package. The bank has raised another $50 billion since the middle of 2007.
Analysts said the bank could face more than $20 billion in losses in 2009 on commercial real estate, credit cards and emerging markets, as the world economy sinks into recession.
"How much capital is Citi going to need?" said Keith Davis, a bank analyst at Farr, Miller & Washington in Washington, D.C. "I don't think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later."
Citigroup shares closed down $1.69, or 26.4 percent, at $4.71, with volume topping 723 million shares.
SHORT-SELLING Continued...