Citi's Management Looks Overmatched 7 comments
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From the WSJ:
The selloff in Citigroup shares has led executives to start laying out possible contingency plans. In addition to pondering a move to sell the entire company to another bank, executives have started exploring the possibility of selling off parts of the firm, including the Smith Barney retail brokerage, the global credit-card division and the transaction-services unit, which is one of Citigroup's most lucrative and fast-growing businesses, the people said.
Sound familiar? Lehman Brothers (LEHMQ.PK) was stunned by its tremendous stock price decline and considered selling off NeubergerBerman, its most prized and valuable unit. Citi (C) executives are obviously clueless right now. After all, the company's CEO is a former hedge fund manager and has no banking experience whatsoever. Conversely, the top brass at the other major banks are all seasoned bankers.
Selling off its valuable assets to raise money to burn in its worst units is not a good strategy. It is hard enough to operate Citi if you are a great CEO, due to its immense size, but the situation nowadays only further reinforces the notion that Citi should be broken up. Nobody with a clear head would argue that Citi's breakup value is worth less than the current $4.71 share quote.
That said, when management looks incapable and nobody can really get a clear view of what exactly Citi's financial picture looks like with everything lumped together, it is hard to have confidence that the underlying value of the firm's assets will be realized anytime soon. Hence, people just sell the stock.
Full Disclosure: No position in Citigroup at the time of writing, but positions may change at any time
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This article has 7 comments:
Deutsche Bank, UBS, and the Royal Bank of Scotland just had their governments inject additional capital to restore confidence in the respective countrys biggest banks. To think the U S wouldn't do the same for our biggest bank would make us look like fools since we are following their model of injections. Injection money can be used to buy other banks so why not your own common stock.
I don't see one analyst stating to sell any of the big three financials. In fact I have seen Dick Bove and Mayo say buy with price targets 3-6 times Citigroups current price. These are two of the top 3-4 analysts who rate the stock. Mayo came out Friday after the close and said the minimum value would be $9+ .
Citigroup and the other two are only in this predicament because of Paulsons decision last week to abandon the whole purpose of TARP - to purchase troubled assets. When he made the announcement, he said some of the same original banks will now need additional injections. What is he waiting for. Citigroup, Bankamerica,JP Morgan, lost up to half their value with Citigroup being the worst. If you eliminate short selling, Citigroup would rally. What's happening is you have a huge amount of short selling and at the same time their buying cedit default swaps. Watch what happens to the stock if the SEC re-instates a ban on short selling on financials. Christopher Cox of the SEC has a conference call Monday regarging this. Citigroups financials are actually better than Bankamerica and JP Morgan since both purchased companies with very bad financials. These are the three largest financials in the United States. Once Citigroup gets through 2009, it will get back to earning 25 billion per year. At 10x earnings that's a 250 billion market cap which is 12.5x the current market cap. 12.5x the current price takes it to $47 a share. Investors who bought GPU after Three Mile Island at $3 ended up getting 20-30x their money. It takes guts when it looks questionable. You don't panic because profiteers are trying to destroy the stock so they can make a quick buck. Nothing has changed with Citigroups financials in the past month when the President of the United States, Fed chairman Bernacke, FDIC chairwoman Sheila Bair, Treasury secretary Paulson all agreed that Citigroup would takeover Wachovia.Go to the FDIC's website and read the Sept. 29th press release. They were obviously healthy enough then. Citigroups financials will begin to improve quickly with gas prices cut in half. Eighty percent of the country lives paycheck to paycheck. With your average couple paying $50 less per week in gas, that's $2,600 extra for mortgage and credit cards that wasn't there in August when it was still $4 a gallon. Consumers only had this
> Once Citigroup gets through 2009, it will get back to earning 25 billion per > year.
I hope not. Or else we'll have another credit crisis in 5-10 years.
Here is one prime example of Citi 'earning' their money:
findarticles.com/p/art...
and now they are complaining about short sellers. Just like GS did.
PS I do understand that the government has to give them more money. We don't want another Lehman Brothers disaster.
But, now is NOT the time for Pandit to sell off core assets at firesale prices. I want Citi to ride this out, preferably with an endorsement from the Gov't, while keeping all options open when times get better.
I suspect that some of the stories about Citi selling itself or dumping core assets are planted by competitors like Goldman Sachs, which is desperately trying to get its grubby hands on Citi's deposits.