What Are Citigroup's Options?

According to The Wall Street Journal, after another brutal day on Wall Street, Citigroup’s (C) executives frustrated and befuddled by bank’s 50% stock slide this week, are currently evaluating the firm’s shaky market position and weighing the possibility of merging with another firm, auctioning off parts of the company or selling it outright.

So far, discussions regarding the firm’s options have been internal where a range of scenarios that were unthinkable only weeks ago are being considered. Citi’s execs insist that the New York-based bank has ample capital and a sound strategic direction. The reality however, is that the firm’s shares cratered more than 26% Thursday, the lowest plunge in 15 years and its worst one-day percentage decline ever, raising serious concerns about the bank’s capital position. Another worrisome sign is that as the stock keeps nose-diving and unable to find support, Citi’s credit default swaps price keeps soaring as insolvency issues start to resurface.

The sell-off in Citi shares, noted the Journal, has prompted the board of directors to start laying out possible contingency plans. In addition to contemplating a move to sell the entire firm to another bank, executives have started exploring the possibility of selling off parts of the bank, including the Smith Barney retail brokerage, which is one of Citigroup’s most lucrative and fast-growing businesses with 9.6 million domestic client accounts representing nearly $1.6 trillion in client assets worldwide. A move that Citi’s CEO Vikram Pandit would not enthusiastically pursue, sources told WSJ.

This latest development on the possibility of Citigroup auctioning off pieces of its business or even selling the company outright, comes close on the heels of an announcement by Saudi prince Alwaleed bin Talal bin Abdulaziz who announced Thursday plans of boosting his stake in the bank by $350 million, to 5%. His holdings are currently less than 4%.

The bank’s board is reportedly meeting on Friday to discuss all options, including stabilization strategy. So far this year, Citigroup has raised about $75 billion by selling assets and equity stakes, including a $25 billion capital infusion from the U.S. Treasury. The firm’s stock is down 83%, currently at $4.71, down $1.69 or 26.41% on a volume of 724 million.

Citigroup, an icon of global capitalism and once the largest and mightiest U.S. bank by assets and market value, has lost over $20 billion in the last four quarters, hurt by massive write-downs of bad debts. Earlier in the week, the bank said it planned to cut more than 50,000 jobs and reduce expenses by 20% from their peak as the economic crisis deteriorates.

Citigroup has more than 200 million customer accounts in 106 countries.

Disclosure: None

 

Comments

[financialob...:]

Citigroup needs to listen to the financial community and the Federal government needs to create confidence among investors of banking stocks. The idea of moral hazzard is 180 degrees wrong. IMHO no bank (not BofA, JPMorgan, Goldman, etc.) will be safe if this type of stock spiral is a self-fulfilling prophecy. Here is a suggested 10 point plan for fixing the immediate problem (fundmental problems such as illiquidity in the mortgage market still of course need addressing):


10 Point Plan for Citigroup

1. U.S. Government first announces that if Citigroup's stock remains at distressed levels it will purchase it. Then it begins Tuesday to buy $1 Billion in Citigroup stock in the open market. This is a prelude for other actions that may very well provide the government with an immediate and appropriate paper gain.

2. At the same time as the first announcemnent, the Government and Citigroup explain to the public and financial community the outline of the following remaining steps to be implemented within a specific deadline, e.g. two to three months

3. Government invests $9 Billion in Citigroup and takes back common stock at higher-than-current-ma... price, say $10 per share, irrespective of price at time of investment.

4. Government buys from Citigroup $11 Billion of redeemable Preferred with a modest coupon

5. Government reinstates temporarily ban on short sellers for financial institutions and permanently reinstates uptick rule for, at a minimum, financial institutions

6. Citigroup reduces dividend to nominal amount just sufficient to avoid major selling by funds unable to hold stock in companies without a dividend.

7. Citigroup sells additional assets/businesses to raise an additional targeted amount, $5-10 billion (over and above current plans)

8. Citigroup makes detailed presentation to financial community as to how these measures provides Citigroup with well in excess of any notion of reasonable capital adequacy.

9. Government makes public statements saying it will do what is necessary to support the banking system in general and Citigroup in particular, including statement that it:

a. does not believe Citigroup is unsound
b. believes there is a dislocation in the equity capital markets regarding Citigroup based on opacity and fear and that is itself a cause not a symptom of the current problem but that it provides an opportunity for government support that will eventually be costless
c. in fact intends to make a profit off its investment in Citigroup (in that regard, the Government will appoint a prominent financial manager to oversee investment in Citigroup, including taking board seat).

10. Recognizing efforts to date have been inadequate, Citigroup creates and implements ongoing shareholder and financial community communication plan that emphasizes listening, transparency and frequent contact; Citigroup hires outsides advisors as necessary to address this plan.

2008 Nov 23 12:43 AM