Why Dick Bove Is Wrong About Citigroup

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Includes: BAC, C, GS, JPM, MS, WFC
by: Jason Schwarz

Dick Bove is so consumed with the idea of Citigroup (NYSE:C) executive greed that he has gotten lost in the forest. He believes that this $20 billion secondary offering offers no positives for shareholders and he interprets the move as a way for Citi management to get out from under the government pay restrictions and nothing more.

In a very arrogant move by the analyst, he put a ‘sell’ rating on the stock after failing to convince management not to do this deal in a private meeting held three weeks ago. Bove wanted the company to wait 2 more years.

What would have happened if Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Wells Fargo (NYSE:WFC), and JP Morgan (NYSE:JPM) were all operating without the restrictions of TARP while Citigroup tried to compete while hampered by the restrictions? In this scenario we surely would have witnessed a mass exodus of executives away from Citi.

Has Dick Bove read the recent headlines about AIG’s (NYSE:AIG) unhappy management team? The success or failure of a bank is directly correlated to the people who work there, Citigroup had to jump when everyone else was jumping if they wanted to remain competitive. To paint the executive team as a group of greedy, self serving fat cats is too simple minded. Government stakes in private banks was a bad plan to begin with, and the sooner Citigroup can move on the better.

The real story is that Citigroup was able to raise $20.5 billion in the stock market. Only 9 months ago that appeared inconceivable. Are we supposed to be in shock that there wasn’t an appetite for the Treasury to sell an additional $5 billion at the same time? This was already the largest offering in history. Citigroup has a long road ahead of it, but it looks as if it will escape the clutches of government control within 6-12 months, thereby allowing it to retain executives and maybe even hire some new talent.

This offering should be interpreted as progress, not the "terrible error" that Dick Bove is calling it.

Disclosure: no positions