Fourpenny Guy

Analyzing the U.S.'s Four Largest Banks

I don't understand how anyone would consider Citigroup. They have greater liabilities than assets when factoring in offbalance sheet items, they're selling their crown jewels, are owned 34% by the government, and will not return any value once all future revenues are sold (think Primerica and Smith Barney). The fact is that Citi has damaged consumers, shareholders, and competitors through theft and other manipulative schemes. The best scheme was the offloading of bad assets to Legg Mason. The recent JV with Morgan Stanley promises to be interesting since Morgan lacks the managerial depth to handle 18,500 brokers.

The other issue with Citi is 22 billion shares, with 60 billion authorized. Only penny stocks that cannot earn their way to higher stock prices have these numbers. Citi plans a reverse split, thus harming hareholders further, since they've sold future revenues.

The bottom line is that Citi needs to be broken up and sold off. Anyone who believes in the future of this badly managed firm (think how they lost Wachovia and Goldman) needs to examine his/her stock selection strategies. Citi isn't growing, and they probably never will. Citi founders basically built a Madoff type of Ponzi scheme that still flounders today.

Citigroup Already Being Broken Up (But Not Enough)

Citi has done more to harm both clients and shareholders in its existence then possibly any other firm. They have grown to an unmanageable size, stolen money from clients, lied about their financial condition (refusing to acknowledge their offbalance sheet obligations against so-called assets) and now, offer their worthless stock to bankers as an incentive.

If one wants to dig further, Citi nearly destroyed Legg Mason with its SIV assets, and now has taken aim at Morgan Stanley with Smith Barney. The fact is-Morgan Stanley and Citi have no business running a joint venture together. Clients will suffer as Morgan cannot handle 18,500 brokers and are using uneducated people to run the operations. Folks, 18,500 brokers represents real money, and now is not the time to have unseasoned, barely educated, non-MBA's running the planning of this JV. In two years Citi and Morgan go live with the combined JV and I can assure you, Morgan lacks the depth to make this successful-period. Citi knows this and is handing off the brokerage to destroy a competitor.

Citi needs be wound down, sold off, and Morgan Stanley needs a larger partner to help them run the brokerage. I pity clients if they do not since Morgan has said they lack the capital to make the deal work, and Citi is unable to succeed in any business. Once Citi does an IPO of Citibank and Citifinancial, that will be a sign that the end is near.

Meanwhile, Morgan Stanley will stand alone in 5 years with a brokerage of 18,500 brokers they can't handle. Morgan is a country store compared to Merrill, and they should not be allowed to recklessly pursue the joint venture with staff who are uneducated, not well-read, and unable to manage. God help the clients. All I can say.

Citi: Financial Reverse Engineering

Citi is gradually being wound down and eviscerated as well...through selling profits, to losing personnel, pay, issuing shares, etc. Citi is done, and is not worth 97 billion....more like 15, or 90 cents based on pre-share issuance valuations....If they lose Bannamex, god help them. I say, the world is better off without Citi.

Citigroup Inc. Q3 2009 Earnings Call Transcript

Citi is selling profitable assets, and what remains is detritus. The most glaring idiocy these clowns foisted on shareholders is selling half of Smith Barney to Morgan Stanley. Just think folks, in 5 years, Morgan Stanley will own the entire division. They will fail. Why?

MS does not have the resources or staff to handle 18,500 brokers-period. They are building a new platform, and the fun starts in 2 years when they turn it on and the platform fails. Morgan will watch assets leave the firm, and they need to stop saying otherwise, They have no bank, they are simply an investment bank-period, Their management is not skilled in running a brokerage of this size, and they are a two-bit Wall Street Firm with bragging rights until their coveted platform short circuits. Clients deserve better than a firm that has more holes in it than swiss cheese.

Meanwhile, Citi is continuing to flounder as it is wound down. I am reminded of the desperate bailing of a boat and as it sinks, the gold gets tossed overboard. Meanwhile Cap'n Vik says-keep the boat floating as he tosses more gold overboard. Very soon, no gold is left.

Indeed, folks, Citi is done, and Morgan will sink just like Legg Mason did when it did business with Citi. These people are illiterate and not intellectual, and aren't good enough to hold discussions with.
The reality is...Citi is a capsizing ship, and Morgan needs to let its illiterate managers bowl on Wednesdays....clients deserve better than two crap firms.

Obama lashes out at health insurers in his weekly radio address, calling their efforts 'deceptive and dishonest.' "For decades, whenever we have tried to reform the system, the insurance companies have done everything in their considerable power to stop us," he said.

The easiest solution in dealing with Healthcare in general, and the insurers in particular is to nationalize healthcare and eliminate private insurance. I am reminded of the first and only time Lenin allowed the Russian Congress to meet. He simply dissolved the congress. Healthcare is a right, not a choice, not an economic poker chip, and along with Energy and Finance, should be heavily regulated, if not outright nationalized.

Yes, nationalized healthcare is socialism, but, so what? Private options lead to expense and uninsured Americans. The public option would lead to full insurance, access to the healthcare Americans deserve, and less wasteful discussion over cost and access. If Obama is socialist, so what? Socialism does work in Europe and can function in the US.

Citigroup's Dark Arts

Citi is a joke. While JP Morgan and Goldman actually make money, Citi manages to lose money despite the coveted foreign operations it has in 160 countries. However, look at a few issues: their inexperienced CEO lost Wachovia, turned down Goldman, then sold half of Smith Barney to most backward firm on Wall Street. Then, he sold Phibro. Both profits and client service seem optional at this stage. Vikram's job should be optional, too.

I'll also mention that CITI HAS NO VALUE-BOOK OR OTHERWISE. Their offbalance sheet items dwarf assets, and they are selling proitable divisions, with no clear future plans. The joint venture with Morgan Stanley would be better served if a third partner, namely Deutsche Bank, were to fund Morgan Stanley's ability to manage the brokerage operations they will fully inherit in 5 years. The fact is, Morgan is too small to manage an Arby's, let alone a complex 18,500 broker operation. I would say that clients deserve better than a two-bit investment bank with backward technology. If only Citi and Morgan had failed.

Time for FDIC to Back Off Citi

We are a society that seems to like the least experienced individuals in positions of power. Palin and Pandit are two examples. Citi fans will say that Pandit inherited Citi's problems. However, Pandit has no CEO experience, or the rolodex that a Clinton or Kennedy would have. As a result:

-Pandit lost Wachovia and ultimately Smith Barney because he is not a seasoned leader. Wells Fargo outfoxed Citi in that deal.

-Pandit turned down an opportunity to acquire Goldman Sachs. Again, Pandit failed to see the big picture, and turned down that opportunity.

-Citi sold 51% of Smith Barney to the much smaller Morgan Stanley, which has zero experience running a large brokerage firm. The deal is marketed as a joint venture, but Morgan will ultimately own Smith Barney. Pandit's sale of Smith Barney to Morgan Stanley jeopardizes clients, because Morgan does not have the depth or expertise that Citi has, nor do they have a bank. Morgan also lags in client service, and technology as well. In two years, when the platform is built, and the overconfident Morgan Stanley tries to run a business it never has, I would guess clients will run for the exits. Thus, smaller regional firms should prepare for that day.

-Citi cannot repay TARP. If Pandit were the leader everyone says he is, Citi would be able to repay that investment. I wonder...when Citi will sell Citibank, since anyone can see that slowly, the Feds are dismantling Citi. First, Smith Barney, then Phibro...and these are profitable, and meaningful to the bottomline. Ultimately, Citi will be parceled off, Morgan will fail with Smith Barney, maybe not right away, but over time, and the Feds may ask, "why didn't we just let them fail in the first place?"

Indeed. Why not?

Time to Unplug Citi's Leak

We are a society that seems to like the least experienced individuals in psoitions of power. Palin and Pandit are two examples. Citi fans will say that Pandit inherited Citi's problems. However, Pandit has no CEO experience, or the rolodex that a Clinton or Kennedy would have. As a result:

-Pandit lost Wachovia and ultimately Smith Barney because he is not a seasoned leader. Wells Fargo outfoxed Citi in that deal.

-Pandit turned down an opportunity to acquire Goldman Sachs. Again, Pandit failed to see the big picture, and turned down that opportunity.

-Citi sold 51% of Smith Barney to the much smaller Morgan Stanley, which has zero experience running a large brokerage firm. The deal is marketed as a joint venture, but Morgan will ultimately own Smith Barney. Pandit's sale of Smith Barney to Morgan Stanley jeopardizes clients, because Morgan does not have the depth or expertise that Citi has, nor do they have a bank. Morgan also lags in client service, and technology as well. In two years, when the platform is built, and the overconfident Morgan Stanley tries to run a business it never has, I would guess clients will run for the exits. Thus, smaller regional firms should prepare for that day.

-Citi cannot repay TARP. If Pandit were the leader everyone says he is, Citi would be able to repay that investment. I wonder...when Citi will sell Citibank, since anyone can see that slowly, the Feds are dismantling Citi. First, Smith Barney, then Phibro...and these are profitable, and meaningful to the bottomline. Ultimately, Citi will be parceled off, Morgan will fail with Smith Barney, maybe not right away, but over time, and the Feds may ask, "why didn't we just let them fail in the first place?"

Indeed. Why not?

Why We Were Right Not To Nationalize the Banks

Suppose a year ago, both Citi and Morgan Stanley had failed. Would anyone have noticed? Probably not. Citi, for all the boasting it does about having a presence in 160 countries, fails to mention that a tiny detail-they needed government assistance to survive. In a normal economy, Citi would have failed, and the stronger banks would have gathered up the assets. Even now, with the government's 34% stake, Citi is still weak, so weak, it sold half its brokerage to a firm that nearly failed last fall. Both firms would have investors believe that near failure means nothing. Well...it does. Morgan and Citi almost failed because each was and is poorly managed. Had Morgan been sold to JPM, that would probably been a better deal than giving it free rein over Smith Barney.

Now, Citi continues to pretend it suddenly cares about risk, and Morgan, without experience running a large brokerage, is suddenly an expert in that business. Clients deserve better than firms that need to be propped up, or whose technology is 19th century.

The facts are that both Citi and Morgan continue to limp along, with Citi shedding assets, selling crown jewels along the way. How could firms that nearly failed be that important to the world economy? Citi would have investors believe they're well capitalized. Ok, well, what about off-balance sheet items? Of one includes those, Citi is still not in good shape. And, finally, what does Morgan Stanley do, exactly? I pity the Smith Barney clients since a joint venture between Citi anmd Morgan Stanley is analogous to handing a blind man a flashlight to lead the way out of the woods. Pretty pitiful.

Morgan Stanley Sued Over a Bad Derivative Bet

One has to wonder whether Smith Barney is better off without Morgan Stanley. Lost in the suit is the fact that Citi and Morgan are supposed to be joint venture partners, not squabbling teenagers. However, the same logic that created the payout on CDs for Citi created the nightmare that is now Morgan Stanley-Smith Barney, cobbled together from mediocre parts.

I would suggest to clients that in two years, the most backward brokerage/investment banking firm will attempt to create a best of breed brokerage firm. Morgan Stanley management is obviously dumb enough to believe their own propaganda, sell cd;s and commit bullion fraud. Just imagine what they'll do to client accounts without trying. These guys need to be shut down.

Citigroup (C) sues Morgan Stanley (MS) for $245M, saying it failed to make good on a credit default swap Citibank bought from Morgan for $750K in 2006.

I was amused that Citi and Morgan have a joint venture with Smith Barney as the victim, I mean opportunity and yet Citi is suing Morgan-too funny. Personally, I think Morgan Stanley lacks the ability to run a brokerage successfully based on their lack of depth that Citi has, even as an insolvent firm. Both firms nearly failed, and Citi still needs cash based on off balance sheet assets.

I would think that both firms clearly need a third partner to run the joint venture, given that both firms almost failed without government intervention. Morgan is still using old technology and if they almost failed, why would anyone trust them to run ANY business? I don't. Their management is largely unskilled, cheap, and their operations model looks British-lots of paper used. Besides, look what Citi did to Legg Mason-and then look at the joint venture though that prism. Citi will eliminate a competitor, and Morgan will not have the ability to survive a failure of Smith Barney. Brilliant on Citi's part. Smith Barney is the trojan horse and Morgan, with its illiterate managment, took the bait.

In any case, all the small to mid sized brokerages out there need to ramp up their back and front offices. The Citi-Morgan Staney JV will fail, and neither has the resources to serve the clients faiurly and accurately-especially the Model T Morgan Stanley. Let's all hope a third party gives them cash to save the clients from ruin, and in the very least, put Morgan to rest.

Time to Read the Riot Act to AIG

Isn't the government propping up Citi? Just wondering what value they have beyond the Federal lifeline. Citi and AIG need to be tossed to the wolves.

Citibank's Problems Are Far from Over

The problems with Citi have been manifold:

1. Stealing money from client accounts through their infamous sweep program, for which they paid a fine, and then raising fees on clients.

2. Selling crown jewels such as Smith Barney, which will harm future profits, and cleverly closing that deal early (2nd vs. 3rd quarter) to mask the losses in the 2nd quarter. Future quarters won't be disguised as cleverly.

3. Inability to repay TARP-yet claiming they are solvent

4. 34% stake by US government to close next week, diluting the shares outstanding from 5 to 22 billion. The market cap of 16 billion will not change, but the share price would need to drop below a buck to align with the new shares. The equation is...16 bil market cap/22 bil shares outstanding.

5. Reverse split will drive up share price, but reduce shares clients have, The market effect would be same share value, but people will feel poorer.

6. Derivative exposure of 264 billion according to the OCC-vs. market cap of 16 bil. That's a problem.

7. Supposedly too important to fail, yet has a fraction of the domestic bank shares vs. BAC, as an example. I don't see how Citi is too large or important to fail. Their international business may be large, but if the firm isn't well run, then who cares if they fail?

8. Their so-called CEO has failed miserably. He is not qualified as CEO, as demonstrated by his embarassing failure with both Wachovia and Goldman Sachs. Had Vikram snared those firms, Smith Barney would still be 100% owned by Citi. Instead, he ranted about Wells Fargo. The guy needs to be fired-period, because he is incompetent.

9. Citi is shipping jobs to India-why? The US unemployment rate is closing in on 10%, and the government has lent the firm 45 billion. There needs to be a prohibition placed on offshoring at this firm that has: stolen clients' money, had poor controls, and impoverished shareholders.

10. Operations at Citi are weak, with most people there uneducated and unable to manage people. That has led to weak controls found by auditors, poor morale, and an exodus of talent.

Citigroup: Bargain Basement Price for Long Term Investors

But...you missed some key problems with C:

1. Dilution is about to occur from 5.5 to 22 billion shares with a reverse split in the next year. That means any shares investors buy, today, will be reduced. As Citi shrinks, profits will shrink, and C's market cap, will, too.

2. Citi is selling profitable assets, including 51% of Smith Barney, thus profits over time will be lower, not higher, as they approach typical bank earnings growth.

3. The OCC stated that C, with a market cap of 14+ billion, has 264 billion in derivatives. That means C is overleveraged almost 20 times with these so-called investments. Then, C has a problem with off balance sheet accounting, too.

4. C is still trying to get away with breaking the law-case in point-money laundering issues in Japan.

5. C's CEO has never run a business as large as Citi, sold his Hedge fund to C, the hedge fund failed, and yet, Vikram is still CEO.

6. Citi is unable to repay TARP-pretty pitiful considering they're so well run(according to C).

7, Management at the lower levels tends to be uneducated and dimwitted, hence the control issues C constantly faces. No one with an appreciable IQ would choose operations work, anyway. These people do not see the big picture and I doubt know much more than turning on their PC's. I would challenge auditors to look at every layer of C's operations to see how deep these control issues go.

8. C split into 3 companies on paper as a magic trick to fool investors into thinking they're profitable. Why not spin off the unprofitable divisions. Stop these stupid juvenile sleight of hand games that these criminals are playing with taxpayer money.

9. Citi has been shipping Jobs to India, US jobs...US taxpayer money should not support these endeavors, and should pull the TARP money back, if necessary.

So, can't you find a decent, profitable bank, and not this shell game? C needs to be broken up, and its assets sold off to better run firms.

Citi: Facing Bearish Trades

Citi is clearly mismanaged, and with this week's management changes, including the 5th CFO in 5 years, Citi is basically drifting towards oblivion. I suspect that Citi may be broken up into 3 pieces, or sold, in part, to stronger competitors, particularly on the banking side. Interestingly, Morgan Stanley needs a retail bank, and Citi has one, so C should do a joint venture with Morgan with that entity.

The risk averse traders would do well to steer clear of a firm that cannot repay TARP, has 264 billion in derivative exposure, will be diluting its share base in the coming weeks, and then doing a reverse split. There is no compelling reason to own a firm that blatantly overlooks money laundering controls, and one can bet that Citi lacks internal controls in other areas, too. The smart money is selling prior to earnings, and options are pointing to a 2 dollar stock, if not one under a buck. As we saw with AIG this week, reverse splits kill companies. However, Citi needs to toss Vikram out the door, and bring in a seasoned banker.

One can only imagine what C would look like now had they had a seasoned banker to negotiate for Wachovia, and merged with Goldman. Morgan would not have a controlling interest in Smith Barney. Citi is basically finished, and earnings will shed little light on the future as Citi is shedding strong assets, and losing clients in the part of Smith Barney it has. I would put money elsewhere, in smaller regionals, and better managed, tarp-free banks.