What's Citigroup Really Worth?

I have no clue where Citigroup (C) will open today, forget about a week or a month from now. All I know is that it closed yesterday at the fairly miraculous price of $5.05. I am not sure what this price represents. It is somewhat comforting that neither Yahoo (YHOO) nor Bloomberg can figure out what this price means either.

Note on the following two slides their respective calculations on the market capitalization of C at the closing level (click to enlarge). There is a $30b difference in the calculation. I think they are both wrong.





The calculation by Yahoo assumes that there are 5.5b shares outstanding. That is not correct. I believe that this number comes from C’s 2nd Q 10-Q. In that report C shows 5.9b shares outstanding. This number would be reduced by treasury stock buy backs and therefore comes close to that 5.5b number. On July 23rd and 29th C swapped a boatload of preferred into newly issued common. The Yahoo calculation does not take this transaction into effect when deriving the MC for C.

Bloomberg is very precise on the number of shares used in its calculation. They are using 11,341,826,000 (11.3b). It is not clear where this number comes from. It represents an increase of 5.4b shares from the net 5.9b that were recorded at the end of March. The following chart (click to enlarge) describes who did what to whom in the C deal.


From this one would have assumed that the 3.846b, 823mm, 3.351, and 1.660b (the non Government Pref.) are now part of the public float. That total of new shares comes to 9.7b. This number does not square well with the number that Bloomberg uses. It would appear that some of the Private stock is not included in the public float calculation. For the sake of discussion assume that the Bloomberg share number is correct. If anything it understates the public float.

That number does not reflect the shares that are held by the U.S. Government (aka the taxpayer). The USG holds an additional 7.7b shares. These shares are not now part of the public float and therefore their exclusion in determining public market cap is correct. But at a $5.05 price the taxpayer has a gain in the common that it owns, and I doubt many of the citizens want to be long-term holders. When considering what the pro-form market cap is, the USG shares should be included. At a minimum there should be an asterisk on this number.

If you take Bloomberg’s 11.3b and add to it the 7.7b USG shares you get 19b total shares. At $5.05 that comes to $96b. By way of comparison the de-TARPed Goldman Sachs (GS) has a market cap of only $84b. I’m not sure if anyone knows the fair value of C.

Note:
At a price above $5 the opportunity for Treasury to do a secondary to offload some of its stock must be very tempting (there is a $14b mark to market gain). This is the taxpayer’s money. It makes perfect sense to take some ‘off the table’ given the market conditions. News of that transaction would read very well for Mr. Geithner and the Administration. They have an obligation to protect all of our interests. In this case, getting some of the eggs safely back into the nest would seem wise.

I don’t know the provisions for a lock up of the USG shares. It might require a vote. Those shares are in effect owned by 300 million people. I think they would all vote to do a secondary offering. It would be an interesting Proxy fight.

Comments

[wittenborg:]

From Citigroup's 10-Q (June 30) p 9 you can see that they have issued 17,372,000,000 new shares following the conversion and now have a combined 22,879,716,974 shares outstanding. And yes, the market cap at $5.30 a share is above $121 billion - go figure.

Aug 28 10:32 AM

[John Lounsbury:]

Bruce - - -

Very interesting article and comment stream. I have come to the conclusion that the following is a reasonable description of the progression of C through time:

First - Big
Second - Bigger
Third - Huge
Fourth - Too big to suceed
Fifth - Too big to fail
Sixth - Too big to understand

I believe the seventh life stage for C will be - Too big to exist.

The only reasons that C still exists are (1) government largess and (2) accounting scullduggery. I believe that the future for C involves divestiture of the viable business entities and ultimate failure of the residue. In July (seekingalpha.com/artic... ) I pointed out that C's quarterly reports indicate a cumulative loss of more than $22 billion dollars over the past five quarters, calulated by subtracting the proceeds from asset sales (divestitures) from the reported earnings. As C sells more and more profitable parts, the buoyancy of the remaining hulk just settles lower in the water, eventually to submerge.

When it comes to C, my advice is "trade, don't invest". This is true for some other banks, as well, but C is the poster child.

Aug 28 10:52 AM

[strawdog:]

If the government sold it's shares it would tank the share price. Catch twenty-two.

Aug 28 11:28 AM

[Bruce Krasting:]

John L - LOL

I have received comments on other sites and off the grid that confirm what Wittenborg commented above. The total float is 22.9b and it is worth 120b today.

Hat Tip to Wittenborg.

Others point out that there is still USG pref (old TARP Pref.) at some point this will be converted to yet more public shares

bk

Aug 28 12:23 PM

[jdl51:]

Whatever the reason, a 500% return in six months ain't bad. It seems that the market being based on speculation and not fundamentals is news to most posters here. Right now financials are the latest and greatest. Last couple of months it was tech. What it's going to be next month would be more helpful instead of always analyzing history. It's always been a game of guessing right, and I do mean guessing.

Aug 28 12:50 PM

[otctrader:]

why should the govt hurry and sell? C will probably survive and start paying dividends, hows that for a steady cash flow for the taxpayer.
ps.. I'm canadian

Aug 28 01:51 PM

[AuGod!:]

"What's Citigroup Really Worth?" Exacty - not one penny more or less than what someone will pay for it. That is the "market", second-by-second.

Aug 28 03:20 PM

[Nettligent:]

Citigroup management and Board of Directors have no choice but to follow AIG strategy: increase shares (dilute stocks), reverse stocks (like AIG), clean house with major restructures before the end of 2009.
If CEO and Chairman willing to step down, it will be a big plus for Citigroup, companies, shareholders, and customers.

Aug 28 05:14 PM

[hammer:]

Citigroup exchanged its publicly held convertible and non-convertible preferred and trust preferred securities for newly issued shares of its common stock and the completion of the previously announced further matching exchange offer with the U.S. Government. Approximately $20.3 billion in aggregate liquidation value of publicly held convertible and non-convertible preferred and trust preferred securities were validly tendered and not withdrawn in the public exchange. This represents 99% of the total liquidation value of securities that Citi was offering to exchange. Citi has accepted for exchange all publicly held convertible and non-convertible preferred and trust preferred securities that were validly tendered and not withdrawn and has issued 5,834,126,284 common shares in the public exchange offer.

Plus there were 5,507,700,000 at the end of the second quarter 2009. Cumulatively, this is around 11.34 billion shares outstanding.
At the close of 8/28/2009 the share price is $5.32. Therefore the market cap is $60.3 billion.

Maybe one should read the 10Q and press release on the exchange of preferred shares for common.

Aug 28 06:42 PM

[Harry Tuttle:]

I am taxpayer and I WANT to hurry and bank the profit. As far as I am concerned, I pay taxes to support the US budget (defense, social security, interest on the debt, etc.) If Geithner or someone else wants to punt on Citibank shares based on some chart they can do it with their own money.

By the way, I have no position on C.


On Aug 28 02:24 AM gebby wrote:

> look at the chart and you see c is worth 6.5 to 7 dollars. the
> government is investors in citibank stock. they dont need to hurry
> a secondary which would not be dilutive anyway. just look at the
> chart and buy the stock and then relax. long since 3.25 neckline
> breakout at 4. you do the math. simplify your analysis and stop
> looking for reasons to be scared.

Aug 29 10:17 AM

[Harry Tuttle:]

Because "investing" in banks with the best lobby should not be part of the government mandate. There is a risk that these shares go to zero and a government with a large deficit can ill afford that possibility.

I am afraid that this kind of flexible thinking has brought us where we are, and it is not as pretty as it looks.

I have no position on C.


On Aug 28 08:28 AM Augustbroker wrote:

> Speak for yourself! Why should you think ALL Americans wish to "cash
> in" their C investment at $5.05 when in 12 months time, it could
> be at $12 or $14 or higher! (True it could be lower....but who knows.)
>
> You say "I think they would ALL vote (every American) to do a secondary
> offering". ...to cash in on the recent rise in C stock. "All vote!"
> When did 100% of all Americans agree on anything? In presidential
> elections, 55% is considered a landslide! Personally, I think you
> think too highly of your own opinion...and for some reason feel compelled
> to speak for 300+ million others!

Aug 29 10:21 AM

[multi007:]

I do agree with him though - C can easily jump to $12. You dont need earnings to support it. Take HIG for example. They GUIDED down a few months ago to a nickle. A nickle. Their recent earnings release has them stating a potential $3 a share earnings by the end of the year in future guidance. So to go from a nickel a share earnings to $3 a share all within 6-8 months has caused HIG to go from, peak to trough, $10 /share to a close today 8/28/09 of $24.16 all within 60 days. All you need is one earnings release or increase guidance on these financials and you will see a 100%pop - easily. Granted, HIG is no C. However the price action is / can be / and will be, the same.


On Aug 28 08:37 AM Confuse-ous wrote:

> What about C's business model or prospects leads you to believe it
> is worth 2x or 3x what it is now?

Aug 29 02:10 PM

[multi007:]

I Agree - we should not sell. We should hold out. After all, the fed can afford to lose it all anyway. This way, if they let it ride, there will be a BIG gain back to the government. As a long term investor, Im not selling until it hits the $40s


On Aug 28 08:28 AM Augustbroker wrote:

> Speak for yourself! Why should you think ALL Americans wish to "cash
> in" their C investment at $5.05 when in 12 months time, it could
> be at $12 or $14 or higher! (True it could be lower....but who knows.)
>
> You say "I think they would ALL vote (every American) to do a secondary
> offering". ...to cash in on the recent rise in C stock. "All vote!"
> When did 100% of all Americans agree on anything? In presidential
> elections, 55% is considered a landslide! Personally, I think you
> think too highly of your own opinion...and for some reason feel compelled
> to speak for 300+ million others!

Aug 29 02:15 PM

[Danny Furman:]

Investor or (bad) gambler?:

"long term investor"
"let it ride"
"BIG gain"
"we should not sell. We should hold out"
"lose it all anyway"


On Aug 29 02:15 PM multi007 wrote:

> I Agree - we should not sell. We should hold out. After all, the
> fed can afford to lose it all anyway. This way, if they let it ride,
> there will be a BIG gain back to the government. As a long term investor,
> Im not selling until it hits the $40s

Aug 29 06:25 PM

[Moise Levi:]

The view in Europe is that Citi is "too big to fall".
We see lots of ads again from Citigroup all over Belgium and various European countries.
They lost many customers by selling guaranteed products (guaranteed by Lehman Brothers).
Investors I know here still trust Citi and are buying one step at a time, injecting small amounts of money with a time (target) of at least 3 years.
The view here is that it should reach at least 15$

Aug 30 05:50 AM

[Bruce Krasting:]

Multi007: Based on the current price the government holdings of C stock have theoretical value of $40 billion. The tax payers paid $25 billion of those shares. So they have a big (mark to market) gain.

While you are right that 300mm people never vote the same way I would think that a very significant majority of Americans do not want this exposure for our government. We did not want it in the first place.

At $20 the market cap of C would be $400b. That would make it the largest US corporation by market cap. Silly.

Aug 30 08:28 AM

[Low Sweat I...:]

For what’s it’s worth (maybe not much, just like Citi), earnings number-crunchers are all over the map on C, but definitely pointing north of where the stock is now.

Barron’s ran two stories in July, the first estimating 10x earnings of 65c by 2011-12, for a price of $6.50 or about 24% higher from here.

In the second article, senior statesman Dick Bove of Rochdale Securities agreed ‘normalized’ earnings (interesting phrase for a company like Citi) likely won’t occur until 2012, but Bove believes investors will start pricing them in by the end of this year. Bove’s calculations in Barron’s valued Citi at a whopping $12 a share.

Aug 30 02:34 PM

[Ricard:]

I've made the argument that the government may trade their 34% holdings of C for Citi Holdings. This solves many problems for both the government (outright owning private sector companies is not good) and C (get rid of toxicity).

C has gone to great lengths to separate the good - Citicorp - and the bad - Citi Holdings. Has anyone thought out exactly *why* they went through such an effort? Or *why* C reported Citicorp as booking a $3 bln profit in Q2, and leaving out the Smith Barney windfall along with Citi Holdings out of this number?

I'd also like to mention that reuters has reported that 100% of the insider transactions recently have been a 'buy'.

Here's my piece arguing my point:

seekingalpha.com/artic...

So far, it's been a very successful trade.


On Aug 28 11:28 AM strawdog wrote:

> If the government sold it's shares it would tank the share price.
> Catch twenty-two.

Aug 31 12:59 AM

[wittenborg:]

I wrote Citigroup's investor relations and here is their reply:

Hello Mr. Wittenborg,

Citi has not yet announced the current total number of shares outstanding, however the most recent number of shares outstanding declared in the 2Q’09 Form 10-Q was 5,507,716,974.

On July 30, 2009, Citigroup announced it had issued approximately 5.8 billion shares of common stock in exchange for publicly-held preferred and trust preferred securities, bringing the total number of common shares outstanding to approximately 11.3 billion.

In addition, upon shareholder approval of the increase in Citigroup’s authorized common stock, the interim securities held by private investors and the U.S. government will convert into approximately 11.5 billion shares of common stock (anticipated in early September 2009). Assuming shareholder approval and conversion of the interim securities, Citigroup’s total shares outstanding would be approximately 22.9 billion.

For more information on the public and private preferred securities conversion offers, please refer to the In Focus page on our Investor Relations website: www.citigroup.com/citi...

Kind regards,
Citi Investor Relations

Sep 02 08:25 AM

[Say What?:]

Ansolutely worthless comments - people like u ruin boards


On Aug 28 08:28 AM Augustbroker wrote:

> Speak for yourself! Why should you think ALL Americans wish to "cash
> in" their C investment at $5.05 when in 12 months time, it could
> be at $12 or $14 or higher! (True it could be lower....but who knows.)
>
> You say "I think they would ALL vote (every American) to do a secondary
> offering". ...to cash in on the recent rise in C stock. "All vote!"
> When did 100% of all Americans agree on anything? In presidential
> elections, 55% is considered a landslide! Personally, I think you
> think too highly of your own opinion...and for some reason feel compelled
> to speak for 300+ million others!

Sep 04 06:48 PM