Citigroup's Flush

A plan seems to be emerging from Citigroup (C). If nothing else, the credit situation was not as bad as people feared.

Citigroup reported a net loss of $5.1 billion, or $1.02 a share, for Q1 with more than $10 billion of write-downs. Revenue fell 48% to $13.22 billion. They took $6 billion of pretax write-downs and credit costs on sub-prime loans. The firm also announced write-downs of $3.1 billion on funded and unfunded highly leveraged finance commitments, a downward credit value adjustment of $1.5 billion related to exposure to monoline insurers, write-downs of $1.5 billion on auction rate securities inventory, and a $3.1 billion increase in credit costs in its global consumer business.

Citi also said they have already sold $4 billion in leveraged loans in April. CFO Gary Crittendon said there will be no "transformational" assets sales (they will sell some, just nothing big) in 2008, no more dividend cuts, and no more equity raising. About 9,000 additional jobs, on top of the 4,000 already announced are going to be cut.

In short, things seem to have bottomed. This is not to say it is a shot up from here. My guess is things languish for a while until there is some trust back in the financials. The past month has seem an avalanche of bad news out there, and as a group the financials have taken the hit and equity prices have remained stable.

Now we look to next quarter for more stabilization and perhaps improvement. If there is improvement, it will be small. Just no further billion-dollar write-down would be huge at this point. Investors seem to have much more clarity as to both what is happening inside the bank and in the environment it operates in.

For long term folks, it would seem a good time to get in.

Disclosure: Author is long C.

Comments

[bowlmar]

Citi stored their losses this quarter on the Fed's balance sheet, trading junk for money. Come on now, enough of the CNBC speak.

[DSX Lover]

After it deeps a couple of points of course.
Never buy Stocks that are up 10% in a Day.-Jim Cramer

[sdmuttley]

why buy now...when you can buy lower in a couple of weeks. Same story diffrent quarter. How can you think C will make any sort of come back anytime soon? Deleverging,more toxic CDO's,how about the ALT A's and ARS hit? The bottom in the housing market is not even close in CAL and Florida. why trust wallstreet and the FED? The have screw things up so bad.

[clitosil]

"no more dividend cuts, no more equity raising." ????? Well if he said so it must be true. Huh.

By the way, how come there is no criminal investigation of the Bear Stearns CEO??

[likestofocus]

Wouldn't touch this stock. Todd, can you read their balance shhet and 10 Q and put a value on the company? If Bruce Berkowitz can't understand banks' books why should we even take a look?

[BxCap]

Meredith Whitney says the quarter for Citigroup may be $3.00 to the downside and it comes in at $2.20 in the hole and everyone's dancing in the streets? Lehman has $84B in Alt-A and NO ONE is paying their mortgages in CA, NV, FL, and CO. Citigroup is out of the student loan business, and out of the mortgage business. SIV's are about to be a thing of the past. CDO's aren't moving anywhere, Citigroup just lost a court case associated with Enron, showing you how long liabilities really last, and you're trying to pump Citigroup to me? Only a Sovereign Wealth Fund or billionaire gambler could be that dumb. Read George Soros' "The Alchemy of Finance", pages 84-89.

[BxCap]

Enter your comment herehttp://flippersint...

This might help you understand Alt-A....Sacramento Style....

[eric hart]

We've heard from Citigroup before..."no dividend cuts"...and then they cut. Why should we believe anything they say?

[fatcat]

God,I used to think you had some sense Todd...forget it.

[venividivici]

We all make mistakes. The secret to successful investing is to recognise a mistake early in the piece, take your medicine and get out. This is clearly something you have never learnt because you keep on flogging a dead horse.

[andrewh10]

Why would you want to tie up funds investing in a longer term loser of a bank when there are far superior choices out there (JPM, WFC, or GS). I can understand a short term trade in C if you picked up some shares under 20 and sell them in the 25-28 range. However you should understand that you are playing with fire taking that risk. C still has a ton of terrible assets and they should probably sell larger assets to raise some serious cash like Smith Barney. C has lost all of it’s glamour which it really never had to begin with and the employees performance are just not trustworthy. What other major company seems to physically “blow up” every three to five years? Perhaps Prince and former leaders are to blame for most of the problems but regardless the future does not look bright. The dividend is probably not sustainable and the equity should give lackluster returns going forward very much like a MER or LEH might I add. With the amount of leverage and "dumb money" deals these firms made they deserve to under perform for quite a while this show has not even reached intermission yet.

[Voice ofReason]

Above comments can best be summed up as the Meredith Whitney fan club. Pathetic leemers. If so many foolishly think C is a sell, I got to take a look at it as a buy.

[dlawe]

I have to agree with the commenters above- Citigroup loses 20 billion dollars this year, one of many financials to do so, they get bailed out- they lose only x billion more, their stock is up 1 + today... I work as a physician. If I took such gambles in my profession, I would be accused of not providing standard of care- I would be sued, penalized, probably lose my license- why aren't there penalties for these firms?? This company makes me sick to my stomach. This is all a game, a sham, and the little investors are falling for it again and again.

[gaucho]

All the wall street cheer leaders are singing the same song "The worst is over" and now we can all buy their shares. Well if you believe that BS then you will soon be out of money. I thought that 3 weeks ago BSC was bailed out because it could cause the entire financial market to collapse!! This is better than a soap opera; the patient recovers from a near death experience in just two days with their hair still perfect.
Let’s see the adjustable mortgages peak in FED MARCH and April of this year. That means the foreclosures should peak starting in July and just keep on growing as the REO properties are dumped on the market. OH and let’s remember the ALT-A mortgages and the Option ARMs that reset late this year. Yea boys the good news will keep on coming.
Keep in mind the CREs and the credit cards as the recession expands throughout the year.
How about the off the CITI books 300 billion in VIE Variable interest entities. Yea did you forget that those are worth 27 cents on the dollar? That means CITI has got about 100 billion in negative shareholder equity. So run right in there before all the shares are sold: SUCH A DEAL.

[andrewh10]

I meant Travelers Group in the above comment. For the record I am not a Whitney fan, I just think the articles reasoning for a long term position is rather dubious. Anyone looking at the fundamentals would likely agree. Heck even JPM said C was the short play of the year in 2008, a bold prediction several months ago which turned out to be very accurate. However, if you look at the data the short position in C has dramatically declined thus you have the recent short covering rally. The point being why buy an under performing injured bank with plenty of luggage in a relatively good environment for the industry considering Fed policy and the yield curve when you can own something better with proven management. My gut tells me rates will not stay this low for long and the banks will face some stronger headwinds in the near future.

[sdmuttley]

what's going to happen when the dollar gains some ground? How will companies beat lower expectations?
This whole Bank mess reminds me of the DOT COM BUST.
Maybe the banks woundn't lead us out of the bear market.
I say let some bad banks fail and thier your regulation.

[SergeBirbrair]

I am glad you mentioned Enron. There is another storm brewing -
the class action lawsuits connected to ARS (Auction Rate Securities).
This write down will be bigger than Enron related write downs.

Wait 'til all those stories parade thru courts
www.nothingcontroversi...

[ajhough]

The CDO mess is "eating our lunch" and the SEC is asleep. Even I could see this mess coming and I am just a small investor. I bought my house through a bank, paid for it, and received the deed. Now we sell the paper and resell the paper. What a mess!

[Whisper OnThe Wind]

I'm with voice of reason. Maybe all those screaming for the sale of C stock are hoping to get in at the lower price? I didn't sell before, I'm not selling now. And I already have JPM.

[cat & mouse]

Some drug companies products sold in the market had side effects, which lead to permanent disablement and even death. This was revealed during their clinical trials to the drug firms, but they hid it from the public and the intent was sheer profit, and not worrying about the damages to the patients. They even bribed researchers to give positive analysis of their products.

The same thing is happening in the stock research analysis. Most of the stock analysts, give positive analysis of companies, while actually it shouild be negative. This leads me to think that the analysts are in the pockets of the companies. They do not care that many people, who have invested in these stocks with their life savings, would go bust and be on the streets in their retirment age. They have no conscience, as their greed exceeds their moral commitments.

[nayr]

cat and mouse is right. An analyst should not recommend a stock that can't be understood from it's balance sheet and has publicly lied (that crap about no dividend cut is a lie, just like last time) in the last 6 months. These analysts should just be ignored. read some reggie middleton if you want to know what's really up with the banks and brokers.

[wallawallabingbang]

Sure, sure buy banks!

[phinsuntanning]

thank you friday, it was the great shorting opportunity for C!

[sdmuttley]

Option ARM and Resets. Banks and our Economy will recover in 2010

[skeptical1]

Its only at times like these that you are able to buy an institution like C for $25. For those who would have rather bought it at $12 as Whitney promised (so would I have and I did keep some firepower available), its likely to be an unfulfilled wet dream. So the real question is, with all its problems, are we going to be able to see C below 20 or should we plunge in now. For those with no positions at all, it would be advisable to at least nibble.

[Voice ofReason]

Just because some over paid "analyst" said blah, blah, blah, doesn't mean it will happen. Anyone with a online account should do a simple exercise. For example I have a E-Trade account. Click on the Analyst Research tab and you'll see 26 firms tracking C. If this was a "science" then that would infer everyone would come to the same conclusion crunching the same numbers. Lets see. Right now 4 are a strong sell, 9 sell, 8 hold, 2 buy, 3 strong buy. In other words these "analysts" are all over the map which tells me they're doing little more than guessing. Repeat for the fortune 500 and you'll see the same kind of wide differing opinions in many stocks.

I have as much use for analysts "opinions" as I do used toilet paper. I flush both.

[NeoTrdr]

What I notice is that most of the Analysts providing the sage wisdom are pretty young. I wonder what the average age and experience of these folks are? Follow the charts not opinions - IMHO.

[BxCap]

Voice of Reason, I went through this same debate dynamic with Newcastle (NCT) back in December, and I though those that were bearish and thought the once $35 stock, then at $13, was a steal based on their book value of $18 plus. With every write down or mark-to-market, it got worse. Luckily I just bit the bullet and sold my position, bought at $16.50, for $13.50. Three months later, it's banging around $8-9/share, and I still feel badly for those that, like me at the time, were believers. They had done a lot of homework, but you can't see through the curtain all of the time. In fact, you're not supposed to see through it, as "information-with... protects the interests and investments of these companies. Great points made about lawsuits, and the inaccuracies of analysts. Enjoyed the thread.

[fxtrader07]

@Voice_of_Reason and skeptical1: what is your valuation estimate on C and how do you arrive there? Or are you just going by rule of thumb as the stock has lost more than 50% from its high, so it must be cheap now?
If bankers tell me they (1) cannot know from the published data and informartion what risks the banks really have and that (2) you can hide almost everything in a bank#s balance sheet I wonder how "investing" in a bank stock is different from rolling the dices or playing roulette? I mean, with a materials stock or an industrial company I can quite well asess their assets, liabilities, earnings risks. I can arrive at a fair valuation (fair to me, that is, other market players might differ) and accordingly set a buy level and manage my risk. With a bank ,though, mgmt can make earnings look almost any way they like them to be, hiding losses and liabilities for years and years. So they might only come out after one or two former CEOs have long retired and collected all their bonuses and cashed out their stock options. HOW do YOU KNOW(!) that Citi is in fact not worth, say, less than half of 25$/share?

[fxtrader07]

oh, and by the way: banks do NOT trust each other - as is plain to see in the money markets and from the interbank rates.

Question: If banks just don't trust each other right here right now - why should WE??

[BxCap]

Update: 4/21/08 Parmalat (Italian) just got the OK to sue Citigroup over events that took place in 2003. Funny how the obvious keeps happening.

[MSF]

''LOSE MONEY'' STARRING JIM CRAMER

[fxtrader07]

"CFO Gary Crittendon said there will be no "transformational... assets sales (they will sell some, just nothing big) in 2008, no more dividend cuts, and no more equity raising."

only 2 weeks(!!) later: "Citi seeks to raise an extra $3bn in equity"

Yeah, and of course, this will be the last time of raising additional equity. Todd, how many times more do you want to allow yourself being screwed by these crooks?
Seems that Whitney has been once again right on the money. And she talked of at least another 10-12 billion that need to be raised (or else a couple hundred billion of assets sold)...

[BxCap]

Update. Meredith Whitney was right, as C now trades closer to her estimate of 11-12 than this article's non-sense. MW has just revised her estimate....lower. The situation WAS worse than the writer thought.