Citigroup collapse ?, sommige experts denken van wel.

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Citigroup's cost cuts may not bring 09 profit

By Dan Wilchins - Analysis

NEW YORK (Reuters) - Heads may be rolling at Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), but that won't necessarily stop the red ink from flowing next year.

The bank said earlier Monday it expects to shed 52,000 jobs by early 2009 to cut costs as global economies slow. But if the company's credit losses are big enough, they may overwhelm any savings from cost cutting.

"Performance will be determined by how big credit losses are," Bill Fitzpatrick, equity research analyst for financial stocks at Optique Capital Management in Milwaukee, said Monday. Optique does not own Citigroup shares.

"They're taking the right steps, but you need a more benign economic environment before the company and the stock price recovers," Fitzpatrick said.

It is easy to imagine Citigroup losing money in 2009 for the second straight year.

The bank is trying to scale its balance sheet down to roughly its size in 2005 and 2006.

If it were to generate about $85 billion in revenue in 2009, similar to levels of a few years ago, and expenses were no more than the $50 billion to $52 billion it is aiming for, it could face losses if it had to set aside at least $35 billion for the year to cover loan losses.

That amounts to $8.75 billion a quarter, which Citigroup could easily surpass after setting aside $9 billion in the third quarter of this year. It is widely believed that economies worldwide deteriorated markedly in October and early November, and reserves for loan losses could increase quickly.

"Commercial loans, emerging markets loans, credit card loans, they're all under pressure," said James Ellman, president of hedge fund Seacliff Capital in San Francisco.

PROFIT SCENARIO

Citigroup may be able to turn a profit in next year's third and fourth quarters, particularly if the economy starts to stabilize or recover.

The bank has recorded higher loss reserves relative to loans than many of its peers, including JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz), which means it may not have to set aside money for losses as aggressively as it has done this year.

Veteran banking analyst Charles Peabody sees Citigroup setting aside about $20 billion for credit losses next year, with the biggest hit in the first quarter.

Citigroup's biggest U.S. credit exposure by far is in the housing market, Peabody said. If that market stabilizes, the effect of credit deterioration in other markets will look comparatively small.

The bank's share price may decline further in the near term, but could double in 12 to 18 months, assuming the company can generate $2 of profit per share a year, and shares trade at about 10 times their earnings, he added.

"It's a very compelling value," Peabody said.

Citigroup stock fell 63 cents, or 6.6 percent, to $8.89 on the New York Stock Exchange on Monday.

Wall Street analysts, on average, expect Citigroup to earn $1.05 a share before items next year, according to Reuters Estimates.

But analysts cautioned that predicting the outlook for any bank is difficult, and 2009 may be a grim year for Citigroup.

"Citi is not out of the woods yet," Optique's Fitzpatrick said.

(Editing by Jeffrey Benkoe)

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Citi’s Leverage
November 17, 2008 – 12:36 pm

by Rolfe Winkler, CFA

More from Citi’s investor presentation…

There are plenty of slides talking about “Tier 1 Capital” and such. I never understood those ratios and don’t think they’ll be worth much in a panic situation as banks lose access to hard funding sources like consumer deposits. Using Citi’s Tier 1 Capital ratio of 10.4% would imply a leverage ratio of 100/10.4 = 9.6x.

But we know from the cases of Fannie and Freddie that regulatory capital ratios are very squishy…

Back out worthless assets from the bank’s equity calculation and the denominator decreases very suddenly. So in Fannie’s case, you had $2.5 trillion of assets versus ~$45 billion of “capital,” which implied a leverage ratio over 50x. And yet that “capital” figure included at least $21 billion of deferred tax assets that Fannie wrote down to $0 in the most recent quarter. (see this previous post on Fannie to understand why DTAs are worthless).

The reality is, intangible assets like deferred tax assets should NOT be included when calculating leverage ratios. Excluding those meant Fannie had a leverage ratio of 100:1! When assets are 100x larger than equity, it takes only a tiny reduction in assets to reduce equity to zero. And with house prices likely to fall more than 30% nationally, asset values are falling more than just a little. This is why Fannie has already said they’ll need more than the $100 billion promised by Treasury.

Leverage ratios are important because they tell you how much money is in reserve to cover losses. That’s why you shouldn’t include faux assets like intangibles, deferred tax assets and goodwill. These things are worthless in a bankruptcy court. They can’t be used to pay off a company’s debts. Wouldn’t it be great if you could use your tax loss carryforwards to pay off a credit card bill? (see that Fannie post to understand what I mean)

A leverage ratio is basically assets/equity. If assets decline in value, and not because of a reduction in liabilities, then there has to be a one-to-one decrease in equity. This is so because for a balance sheet to “balance,” assets must equal liabilities + equity. In Fannie and Freddie’s case, you knew a long time ago that assets were going to fall at least 5% and that that would be enough to wipe out the company’s equity. At its most fundamental level, a company’s stock price is its equity divided by the number of shares outstanding. If equity = $0, then the stock price equals $0. Fannie’s and Freddie’s stocks both trade pretty close to $0.

Now consider Citigroup. It has $2.05 trillion of assets listed on its balance sheet. That includes $63 billion of “goodwill and intangibles,” worthless assets like Fannie’s DTAs. Contrast this with the company’s equity of $151 billion, which would include $25 billion from TARP. That implies a leverage ratio of 14x, not 10x as the bank would have you believe when it publishes its “Tier 1″ capital ratio. Remove goodwill and intangibles from assets and equity and you have a true leverage ratio of 23x. = ($2.05 trillion - $63 billion) / ($151 billion - $63 billion). That’s roughly the same calculation we did to get to Fannie’s true leverage ratio of 100x.

By the way, I’m giving Citi credit for the $164 billion of “other assets” on the balance sheet as well as $19 billion of assets of “discontinued operations” held for sale. These sound pretty squishy too…

And now for the scary part. Citi’s $2.05 trillion of assets are just “on-book” assets. They have $1.6 trillion of credit commitments and $1.3 trillion of “off-balance” sheet commitments to boot.

You only need a small paper loss on the company’s assets (on or off balance sheet) in order to wipe out the company’s equity.

Now what if I told you the same is true for all the major banks in the U.S. and Europe?

You might think it prudent to keep some money under your mattress.

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Op dinsdag 18 november 2008 08:45 schreef henkway het volgende:
dassallemaal wel heel erg dan

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Op dinsdag 18 november 2008 09:46 schreef Verbal het volgende:
Dat zei ik...

V.

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Worst May Be Yet to Come for Citigroup - NY Times (13 nov)

After a year of red ink, a months-long plunge in its share price and a $25 billion government rescue, you might think the worst was over for Citigroup.

It is probably not.



Citigroup, which a decade ago set out to rewrite the rules of American finance, is bracing for still more pain now that a recession is at hand. Loans that the financial giant made to consumers in good times are going bad in growing numbers. For the moment, profits seem as elusive as ever, analysts say.

Once the most valuable financial company in America, Citigroup is withering along with its share price, which this week sank into single digits for the first time in a dozen years. The company is also shrinking in another painful way: by cutting, and cutting, and cutting jobs. Another round of pink slips is expected next week.

As Vikram S. Pandit completes his first year as chief executive, many analysts say Citigroup has lost its way. Insiders say the company is racked by office politics at a critical moment in its history.

Mr. Pandit is struggling to regain his grip on the company, which operates in scores of countries, after his attempt to buy Wachovia was upended by Wells Fargo. That misstep left Citigroup grasping for a new strategy to lure deposits and build up its branch network in the United States.

“Citi doesn’t have a credible management team, they don’t have a credible board,” said Christopher Whalen, managing partner at Institutional Risk Analytics. “If you look at their loss rate, it is almost inevitable that Citi is going to be asking the government for more money next year.”

Worries about Citigroup’s future were apparent in the stock market on Thursday. While the share prices of many of its rivals soared along with the broader market in a stunning afternoon rally, Citigroup’s stock fell nearly 2 percent by the end of regular trading. At its closing price of $9.45, the stock has lost almost 68 percent this year, making it the third-biggest loser in the Dow Jones industrial average, behind Alcoa and General Motors.

Many Citigroup employees know their jobs are on the line. Executives said that as of the third quarter, the bank had announced plans to eliminate 40,100 jobs. That includes reductions resulting from the divestitures of the company’s German retail banking operations and its Indian outsourcing franchise.

But Citigroup still needs to hand out pink slips to 9,100 workers to meet its goals, and bankers are bracing for much of the bad news to arrive early next week, according to executives briefed on the situation.

Investment bankers are expected to bear the brunt of the cuts because senior managers have been asked to reduce expenses significantly. But back-office functions, like the bank’s legal and human resources divisions, are also expected to be hard hit.

The ax could keep falling. While there are no formal plans for further job cuts, executives say it is possible that Citigroup could shed an additional 25 percent of its work force by the end of next year. Such a reduction would include layoffs, a hiring freeze and work force reductions related to businesses that the company is considering selling. Such a move would reduce the total number of employees to 264,000, from about 352,000 today.

Christina Pretto, a Citigroup spokeswoman, said that the bank was carefully managing its employee levels as it revamps the company to operate more efficiently in the current downturn. “Nothing has changed,” Ms. Pretto said.

Citigroup is also grappling with how to position its domestic consumer business, which faces rising loan losses and, analysts say, lacks the leadership and strategy it needs. Having lost Wachovia, Citigroup must now try to stitch together a group of small regional banks to catch up with Bank of America, JPMorgan Chase and Wells Fargo. Executives are looking at Chevy Chase Bank, a small lender in Maryland with $14 billion in assets, among several other institutions, according to people close to the situation.

But assembling a large franchise could take years, and digesting deals has never been one of Citigroup’s strengths.

Even with all these problems, Citigroup’s board has been bickering over seemingly small issues, including which white-shoe law firm will represent it, according to a person close to the situation. Wachtell, Lipton Rosen & Katz had been representing the board, but that firm is representing Well Fargo in litigation over the Wachovia deal. Cravath, Swain & Moore is now being considered to represent Citigroup’s directors, but no decision has been made, according to a person close to the situation.

Citigroup has tried to put on a united front amid the turmoil. Richard D. Parsons, one of the company’s most outspoken directors, said on Thursday that the board was fully behind Mr. Pandit and Winfried F. W. Bischoff, its executive chairman, as it braced for a difficult 2009.

Mr. Pandit, for his part, led a group of Citigroup executives in buying 1.3 million Citigroup shares as the stock tumbled on Thursday.

It was the first time that Mr. Pandit, who had collected $165.2 million from selling his hedge fund to Citigroup before becoming chief executive, publicly disclosed using his own money to buy Citigroup stock.

Ms. Pretto, the Citigroup spokeswoman, said the “purchases reflect their belief in the long-term strength and growth opportunities of the company.”

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Citigroup falls on concern job cuts won't fix bank
Tue Nov 18, 2008 11:01am EST

NEW YORK (Reuters) - Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) shares fell as much as 6.4 percent to a nearly 13-year low on Tuesday amid concern that a plan to shed 52,000 jobs might not go far enough to restore the banking giant to health.

Chief Executive Vikram Pandit announced plans on Monday to eliminate the jobs by early next year in an effort to reduce operating costs at the second-largest U.S. bank by up to 20 percent in 2009.

About one-half of the jobs will be cut through asset sales, and one-half through layoffs and attrition. The reductions would reduce Citigroup's work force to 2005 levels.

Citigroup offered few specifics on where the cuts will be made, except to say that they will be global and affect a wide array of business lines. Some analysts believe the New York-based bank may be hard-pressed to turn a profit in 2009. Citigroup has lost $20.3 billion in the last four quarters.

"The earnings picture is likely to be tough until there are signs of a stabilization in consumer credit quality, which at this point appears unlikely until at least the back half of 2009," CreditSights Inc analyst David Hendler wrote.

Richard Bove, a Ladenburg Thalmann & Co analyst who rates Citigroup stock as "buy," said investors "still do not trust the company's balance sheet," and focused on the cuts as a sign of more troubles ahead, especially given the bank's exposure to many non-U.S. economies that are also under pressure.

He said investors should instead focus on the bank's diverse operations, which rivals cannot replicate.

"This leads to the conclusion that despite loan losses and writedowns, earnings will recover," he wrote. "If this is the case, this stock is cheap."

Citigroup shares were down 33 cents, or 3.7 percent, to $8.55, after falling as low as $8.32 earlier in the session on the New York Stock Exchange. They fell to a 13-year low of $8.28 on November 13.

Through Monday, the shares were down 70 percent this year. Citigroup is a component of the Dow Jones industrial average .DJI.

(Reporting by Jonathan Stempel; editing by Jeffrey Benkoe)