Bruce Krasting

Cramer's Stop Trading! Buy the Heck Out of Citigroup (12/17/09)

Let's be clear Mr. Cramer. The Citi secondary was a bust. You must admit that. The failure of the Treasury to place the promised $5b in shares is the only thing you should look at in evaluating C's prospects.

As of today there is about 10 billion in shares in Treasuries hands. They have promised that these shares will be sold in 2010. The break even price is about $3.25 per share. Pretty much where the market is today.

Jim, you have been doing this a long time now. You are making this kind of recommendation when you know there is a 10b share seller? And that seller has said they would sell in less than 12 months? Come on.

I think that C may be worth more than $3.15, but really, where is the upside? There are dozens of things for your listeners to invest in that actually have a real upside. You working for C or MS on this one?

Citi Out of TARP? Hardly

Correct. Treasury has to sell $25 of common stock above $3 to break even. The stock is under $3.50 today. If the global Sovereign risk story expands in 2010 (it will) the global banks (citi) will suffer.

I would not want to sell $25b of common in that environment. That could cause a panic in the wrong market. There is a very good chance that these deal does not happen in a way that the taxpayers get their money back. My definition for when C is out of TARP is when the taxpayers get paid back. In full. That is not the decision that Treasury has made. We should be angry that we are still at risk while the bonuses flow.


On Dec 16 05:58 AM Angry Banker wrote:

> Citi doesn't have to "pay back" the $25 billion. This $25 billion
> is basically common stock that the US Government owns and will be
> selling over the next 12 months. Assuming the government sells this
> common stock at more than $3.25 per share, it will in fact be making
> a profit on its investment (which it should have started doing when
> Citi was trading above $5 not long ago!).

Citigroup: A Simple Analysis of a Terribly Complex Company

Interesting analysis. I would take issue with your approach. I think we entered a 'new world' sometime in 2008. Everything we thought about re bank earnings and ratios has gone out the window.

Looking at how the market valued C eight or ten years ago has little value as a predictor of the future for me.

What's Citigroup Really Worth?

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.

What's Citigroup Really Worth?

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

Too Early for the Fed to Stop Purchasing U.S. Treasuries?

Tks for this. We shall see what happens to interest rates over the next six months. I think the absence of the Fed POMO buys will make a difference. Rates will have to rise. There is just too much paper that has to be sold.

Two scenarios I see.
A) The economy recovers. Money would go to higher risk and away from Treasuries. This is the crowding out issue. What would an investor rather have, a AAA corporate or a 3% Treasury?
B) Things go wrong and we resume a decline or have no real growth in 1Q 2010. Then we would have another large stimulus plan. This economic situation would likely keep interest rates low. But the amount of new paper to be issued by the Treasury would go up by another $1T and the deficit would widen to a level where bond buyers balk. More pressure on the bonds in that situation too.

In my opinion if an investor buys 10 year Treasury bonds today at a yield of 3.5% they will absolutely lose money. They have to pay tax of 1% on that income. The remaining 2.5% will be lost to inflation.

The Fed has announced that they will purchase 1.75T of bonds. $200b in Agency debt securities, $1.25T of Agency MBS and $300b of direct Treasury securities. Did you exclude the $200b in agency debt as part of the QE total?

Agency Preferred Stocks: Who's Buying?

FRE

The current receivership structure would allow for some formal restructuring of these entities. So I do not think that a 'bankruptcy' would be required to establish that the common shares have no claim on the companies assets.

The market values these two dogs at $1.1 bil. That is down from a peak of $200b. It is now just a nuisance to have the shares outstanding. It obligates the Agencies to file tons of paper with the NYSE.

These two entities consist of people/mortgages and negative equity.

At some point it will be people/mortgages and positive equity. Along the way the old common shareholders will be diluted to zero.

America needs a mortgage Agency. Just not these two. FNM/FRE are dead. Now we have to bury them. From that there will be a new future.

Agency Preferred Stocks: Who's Buying?

Some form of the Agencies as we now know them will be around for a very long time. They represent 60% of the mortgage market. So they are not going out of business anytime soon.

That does not mean that the old stockholders are gong to get anything from that. My guess is that the losses in the Agencies will continue for another 3-4 years. The total losses will exceed $1/4Trillion. Yes the gvmt will absorb that. There is no other choice. But the cost of that is a wipe out of the old shareholders.

Agency Preferred Stocks: Who's Buying?

FRE: Nice name. Respectfully disagree.

Agencies were not designed to absorb losses as you suggest.
That was never in the cards. It just turned out that way.

I think the losses that will have to be realized over time will leave the current equity with little value. It's okay to disagree with that. That is what the market is for.

Did not say that GS was selling and buying this stuff. I said that someone was. The charts show that no?

GS is the lead in the sub debt buy back. They are one of the 'wired' players in the story. Me, I admit, am doing some guessing. We shall see.

Agency Preferred Stocks: Who's Buying?

448719: I can't tell you how many times I have been 'fooled'. So this could be another of those cases. We shall see.

This is a odd story with no precedent. I look at the assets and liabilities as if this were a bankrupt company vs a receivership. That tells me that the liabilities (when this is over in two yrs) will be far in excess of the remaining assets. In a court the equity would get nothing. Not sure why this case should be different.

The taxpayers will have contributed $250-400 billion by the time this is over. They have to get that back before the old common is worth anything. I can't see that happening.

Good luck on the 'long' side of this story. As of July 16, 2009 no one has ever made money owning Agency common. Traders can make money anywhere. A buy and hold on this is going to result in a loss I think.

Agency Preferred Stocks: Who's Buying?

bawe: If something like this happens those holders you are referring to would love it. I am sure that some of them are pushing for it.

legat: These pref securities are sold in $25 amounts at issue. They have different terms. Some floating interest rates others fixed. Different bells and whistles but the same "class". There will be some type of formula that attempts to value all of this at a similar valuation.

So we understand, this is very speculative. I am not suggesting that people go out and buy this stuff waiting for a back end buy out. There are better things to invest in then that. This is a Pro trade. Guys like GS can make this happen. You have to be wired.

Stocks with the Highest Short Interest

This is nice data but there is something missing. What is the borrow cost of being short? Just because there is a big short interest does not mean the stock is going down (or up). There is no public info on the borrow cost. It is a very important part of the equation when looking at this stuff. For example the borrow cost of Sears was 36% per annum recently. You do not want to short that one unless your time frame is very short. If you are looking for a short name check with your broker as to the cost of borrowing. If it is a big number then caveat emptor.

Let CIT Fail: The Business Model Is Broken

This is not an April 2010 event. It is a next week event. They are in covenant default on a number of their bond indentures. This means the holders can accelerate and demand immediate payment.

Shrike: GS does not make bad loans? In this case you might be right. One can assume that that GS has collateral against those advances. (or they bought CDS against it). If you are a troubled borrower the last thing you want is to owe money to
GS. They are not nice and will move fast to protect themselves.

This is an interesting case of 'too big to fail'. With $70+ billion of IOUs it is not a small bust up. If CIT goes chapter it will not kill us. This has been in the works for some time. But the absence of CIT as a lender to small business is going to hurt the broad economy.

A decidedly brown shoot....

What's To Be Done About Citigroup?

Nice article.

The Feds did a very nice job of destroying the bond holders in the GM/Chrysler deals. The precedent has been set.

Citi was/is a regulated entity. GM was not. That is the difference. The thinking must be, "We were supposed to regulate the banks so we have a moral obligation to protect the bond holders."

If you cross over on this line of thinking and actually lean on the bond holders it becomes a slippery slope.

If you tank Citi's bond holders what the heck do you do with the
Agencies bond holders? That is a problem that can't be fixed.

CitiTARP: Worst Convert Ever

I would love to be proved wrong on this. Contest: What is the 36% of cit that the FEEBS now own worth?? Big prizes for the right answer.