Citi Lets Down Market

The market reacted poorly yesterday to news from Citigroup (C) and economic data providers. News flash, there's no quick remedy. However, we expect yesterday's weakness will be quickly forgotten when election year factors lead President Bush and Congress toward action. We disagree with Bill Gross on this subject, and think the two will work toward substantive action in order to outdo the other, rather than stop the other. Also, the supposedly independent Federal Reserve seems to get it now, and we expect significant stimulus as a result.

Citi let down market expectations with no clear cut distinction between past problems and future hope. In fact, Vikram Pandit left things sort of up in the air with a statement that he is not finished yet. The market wanted it finished today, with no more uncertainty. Vik doesn't seem to get it yet. There should have been no greater priority than airing out everything today.

Does this mean Citi is not going to turn around, no. It just means the stock will not pop today. It will pop though, as the dividend cut is now history, the S&P ratings action (another late move by S&P on something everybody knew was coming) is passed, and the company has made clear much of the uncertainty regarding write-downs. The fundamental scare is that Citi still has plenty of consumer weakness and credit exposure in its credit card business. The job cuts were not enough to appease the market, and Vikram came across as not yet having his arms fully around the situation. He may prove an excellent leader, and we think this is very possible, but he didn't market himself that way yesterday. However, we still like C and the rest of the I-Banks for a near-term pop heading into Fed and government stimulus.