Prince is Out: Will Citi Finally Recover?

According to all news media, Citigroup‘s (C) CEO Chuck Prince is finally due to resign today. They all say it’s been long overdue, and we heard it first from Jim Cramer some time ago that he needs to go in order for Citi to recover its tragic long-time decline in share price and market cap value.

If it indeed happens, and I’m sure it will as Prince is under immense pressure from multiple sides, it’s going to be a good news for investors. How good we don’t know. Will it be a short-term “reward” bounce run for Citi with sell-the-news-profit-taking afterwards, or will it be a longer-term rally in making? No matter what the outcome, I’d say it’s always better never to buy everything at once. Especially when the situation is this unpredictable and markets jittery.

But, no matter what’s the case, one can assume that Citigroup at these prices, along with some other investment banks, is a great investment over the long term.

There are few factors to consider though. Charles Prince’s resignation will not change Citi’s huge losses from sub prime mortgage mess. Yes, stock should bounce if that happens, as Chuck’s long-expected departure would be rewarded, but what’d happen immediately a day or two after. Could Citi’s trading pattern next week reflect what has happened with the ouster of Merrill Lynch ‘s (MER) Stan O’Neal last week? If you recall, Merrill Lynch jumped after the news of Stan O’Neal’s leave, just to lose all the gains and much more on Friday after the news broke out in the Wall Street Journal that SEC might be soon investigating Merrill’s subprime loans practices. Now, we might have a similar situation developing with Citi's CEO leaving, which opens a door for further investigations and questioning.

According to the Wall Street Journal, people familiar with Citi’s matters are saying that SEC is looking into the bank’s accounting. Apparently, the SEC is reviewing how Citigroup accounted for certain off-balance-sheet transactions, and whether it appropriately accounted for $80 billion (yes, billion) in the mortgage-backed securities.

In addition to all that, Citigroup reports next week, and it’s very possible that they’d report even further losses from its mortgage-linked dealings. But one must be fair and wonder if those possible further write-downs have already been taken in consideration and already priced in Citi’s share price since last week. No matter how this all plays out short-term, it’s good that Prince is leaving. While other banks were cashing in billions of dollars from international and consumer business, Citi has been struggling for years under Chuck’s leadership. So, his leave should provide at least a temporary relief to Citi’s investor groups.

Citi remains to be at the lowest point ever, and it also remains a great long-term investment opportunity. Should one engage right away, or wait for another Merrill-type pullback again, is unclear, but perhaps an executive at Solaris Asset Management outlined it for us by saying that he’d consider buying the stock if it gets somewhat cheaper, once balance sheets are clearer.