Citigroup collapse ?, sommige experts denken van wel.

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Op donderdag 20 november 2008 17:46 schreef ItaloDancer het volgende:
-20% op 5 dollar.

R.I.P. Citi

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Citigroup's Move Below $5 Could Trigger Major Selling

Citigroup's stock [C] is spiraling down towards $5—a 13-year low—but the banking giant's troubles may be just beginning.

Most institutional investors and pension funds are barred from owning stocks below $5. So if Citigroup's stock falls below that level, it could trigger a wave of selling that would send the share price even lower.

"That's the danger of crossing that $5 threshold," says Owen Malcolm, senior vice president of Sanders Financial Management in Atlanta. "They're (Citigroup) already in trouble. It could get worse."

Money managers wouldn't necessarily have to sell Citi immediately. But they would have to get out before the end of the quarter and may opt to do so now to mitigate potential losses.

"They've got five, six weeks to make decision on whether they're going to get out," Malcolm says. "There's still a lot of institutional ownership of Citigroup. That could change quickly if they have to be out at the end of the year."

Citi shares tumbled again Thursday despite news that Saudi Prince Alwaleed bin Talal plans to increase his stake in the company to 5 percent from less than 4 percent. The prince said the bank's shares were "dramatically undervalued" and voiced support for the current board and CEO Vikram Pandit.

But Alwaleed's investment position didn't change investors' view of the firm, which has been hammered by the credit crisis like the rest of Wall Street. Analysts were watching the stock price closely to see how it would affect pension funds that hold Citi shares.

"It's getting to the point where it's make-or-break time for Citigroup," says Ryan Detrick, an analyst at Schaeffer's Investment Research in Cincinnati. "It doesn't look promising."

For Citigroup, a Dow component and one of the world's biggest financial institutions, the reversal in its stock price is stunning. The stock was trading at over $20 a month ago and $31 a year ago. It has plunged nearly 90 percent in nearly two years.

Citigroup shares have lost one-third of their value in the first three days of this week as investors worried that Pandit's plan to cut expenses by 20 percent and eliminate 52,000 jobs won't restore the bank to health.

Citigroup has lost $20.3 billion in the last year and taken tens of billions of dollars of writedowns on mortgage and other toxic debt. Analysts expect it to lose money in the fourth quarter, and some don't expect it to be profitable in 2009.

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Op dinsdag 18 november 2008 11:38 schreef Mendeljev het volgende:
Ik heb eigenlijk toch wel vertrouwen in die Arabieren. Ze kopen niet voor niets de financials op.

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Saudi prince to boost stake in Citigroup

NEW YORK (CNNMoney.com) -- Citigroup's largest individual shareholder, Saudi Prince Alwaleed Bin Talal, said Thursday he planned to increase his stake in Citigroup back to 5%, even as shares of the firm have plummeted in recent weeks.

The move by Alwaleed, a long-time investor in the bank, follows the U.S. government's decision to inject some $25 billion into the New York City-based bank. That left Alwaleed with about a 4% stake in Citigroup.

The news did little to comfort fellow Citigroup (C, Fortune 500) investors, however. The stock tumbled 18% Thursday morning, extending the brutal losses from Wednesday, when the stock plunged 23%. Shares of the firm are down 78% so far this year.

In a press release from his holding company, Alwaleed expressed his faith in Citigroup management, including CEO Vikram Pandit, and added that he believed the company was doing what is necessary to weather the current economic crisis.

Alwaleed's firm did not provide terms of the purchase including how many shares he would purchase or at what price.

Based on the most recent securities filings, Alwaleed and his holding company owned more than 250 million shares of Citigroup.

Alwaleed, worth about $21 billion according to Forbes, is one of the world's richest people. The Saudi prince first acquired a stake in Citicorp, which later became Citigroup, in 1991. According to filings, Alwaleed also is a big investor in media company News Corp and online travel site Priceline.com.

Earlier this year, he was among a group of investors who invested $12.5 billion in Citigroup, as part of an effort by the bank to raise capital.

Citigroup, the nation's fourth-largest bank in terms of deposits, has been one of the hardest hit financial firms during the credit crisis.

Earlier this week, the New York City-based bank unveiled plans to cut its staff levels by more than 50,000 in an attempt to reduce expenses as it braces for what many are anticipating will be a difficult economic climate in 2009.

There has even been talk that changes could come at the top of the organization although the company has strenuously denied such speculation.

At the same time, analysts have warned that the company still faces a large exposure to problem assets, such as mortgages, credit cards and commercial real estate.

Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone noted in a report earlier this week that the bank would likely be forced to take additional writedowns and report another loss in the fourth-quarter.

The bank has lost more than $20 billion in the past four quarters.

Citigroup is also bracing for a tough economic climate in 2009, which could translate to rising losses tied to consumer and business loans

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Op vrijdag 21 november 2008 08:18 schreef Dinosaur_Sr het volgende:

[..]

Citi een leverage van 14 of 23x?
en dat is een risico?

ING heeft een leverage van ongeveer 50x
wat is dat dan?

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Citi “weighs options”
November 20, 2008 – 11:26 pm

by Rolfe Winkler, CFA

The Citigroup Death Watch continues, according to the Journal:

The sell-off in Citigroup shares has led executives to start laying out possible contingency plans. In addition to pondering a move to sell the entire company to another bank, executives have started exploring the possibility of selling off parts of the firm, including the Smith Barney retail brokerage, the global credit-card division and the transaction-services unit, which is one of Citigroup’s most lucrative and fast-growing businesses, the people said.

Mr. Pandit, an enthusiastic defender of Citigroup’s existing mix of businesses, is loath to pursue such an approach, the people said.

Bank executives argue the company is well-capitalized, but that’s simply false. And the market knows it. As I wrote a few days ago, Citi’s true leverage ratio (after backing out goodwill and intangibles from capital and adding back off-balance sheet liabilities and commitments) is somewhere between 35:1 and 70:1. Even at the lower end, that means Citi is terribly vulnerable to a decline in the value of the asset side of its balance sheet. PR efforts highlighting the bank’s “strengths” are kind of hilarious:

Executives in recent days have been telling traders, brokers and other employees to reach out to clients and tick off a list of factors that showcase Citigroup’s strength. On Thursday, for instance, executives in the wealth-management unit arranged a Friday-afternoon conference call for clients. A brochure that brokers were asked to share with clients promises that the call “will help you to better understand the current financial crisis.”

The government won’t let Citi collapse. They’ll force a sale to another bank, like Chase, B of A, Wells Fargo, or perhaps a stronger, foreign rival. But the problem is that we’re just building a bigger time bomb. All of the above banks have very high leverage ratios. Fundamentally, they’re not in a significantly better position to withstand the crisis than Citi. The government will, perhaps, try to roll up all private banking assets into one super bank, which will receive unconditional government support. And yet, the potential failure of the super bank could blow up even the government’s balance sheet.

Interesting times…

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Citi Rescue Talks Underway
The market shrugged off the prospect of a Citigroup meltdown and focused instead on the leak that Timothy Geithner was Obama's pick for Treasury Secretary. Citi fell another 20%, its shares dropping below $4. Have banking catastrophes become so routine that it is now assumed that the officialdom will clean up the broken china and put the bill in the post? I recall when Citi nearly failed in the early 1990s (the big culprit then was junior loans on a lot of commercial development in Texas that wound up being see-throughs) and it was white-knuckle time.

However, there is a big difference between this and other financial firm meltdown episodes. Despite the near vertical descent of the stock, there appears to be no run on the bank. And if there is no run on the bank, or flight of counterparties, there is no need for a rescue.

But as we have pointed out, the Fed is acutely sensitive to the needs of banks, so it would be highly unwise to bet against official intervention before the markets open on Sunday in Asia.

Forgive me for lifting a section from yesterday's post, but it is germane:

John Hempton has suggested that the reason Shiela Bair pushed the deal with Citi, despite it being worse for the taxpayer that the one offered by the successful bidder, Wells Fargo, was that it would have provided a route for a back-door bailout:

Sheila Bair – as readers will remember – forced Wachovia to sell itself in three days whilst other parties had not had anything like enough time to complete due diligence. She – unilaterally and incorrectly – told the world that this deal could not be done without government assistance. She unilaterally decided to issue a guarantee that on a pool of $312 billion of Wachovia assets Citigroup could not lose more than $42 billion. She made that decision even though Wells Fargo was telling her that all they required was more time to do due diligence.

Given that Wells Fargo was willing to acquire Wachovia at no-cost to taxpayers that looks like a very bad decision indeed. But this is the post assuming that Sheila Bair is smarter than all of us.

And so we need to understand the significance of that guarantee. The significance is as follows: Once Citi owns $312 billion in assets on which they can only lose $42 billion the remaining pool must be worth $270 billion. That $270 billion is guaranteed by the US Government – as the FDIC is a full faith and credit organisation. Citigroup can put that $270 billion (plus the $42 billion in non-guaranteed assets) in a pool and repo it – and as Treasuries yield very little they will wind up paying well under a percent of interest. The Sheila Bair decision was equivalent to a cash injection into Citigroup of 270 billion because the repo-market will turn government guaranteed loans into cash.

That cash injection is almost 40 percent of the size of the whole bailout package and it was given to Citigroup by Sheila Bair without congressional oversight. We got all stroppy at giving Paulson that sort of unilateral powers – but – hey – we are prepared to forget that Sheila Bair already has them.


The size and nature of a rescue operation could indirectly confirm or dispute Hempton's views. It suggests that Citi may never have gotten over the SIV mess of last year. Recall that Citi was far and away the biggest single exposed party and would clearly have been the biggest beneficiary had Paulson's TARP version 1.0 (known as the MLEC, or Master Liquidity Enhancement Conduit) ever seen the light of day.

We don't follow Citi systematically, but checking our posts, Citi as of end of second quarter 2008 had $1.1 trillion in off balance sheet assets, in addition to its $2.2 trillion of assets shown in its published financials. It was not clear at the time how Citi intended to deal with those exposures. Pandit had said then that he intended to reduce the balance sheet (as in the $2.2 trillion version) by $400 billion, which included $45 billion of former SIV assets.

From the New York Times;

With the sharp stock-market decline for Citigroup rapidly becoming a full-blown crisis of confidence, the company’s executives on Friday entered into talks with federal officials....the executives and officials weighed several options, including whether to replace Citigroup’s chief executive, Vikram S. Pandit, or sell all or part of the company.

Other options discussed included a public endorsement from the government or a new financial lifeline, people involved in the talks said....

As Citigroup’s stock sank during the day, falling 68 cents to close at $3.87, the Federal Reserve was carefully monitoring how much money corporations and other customers were withdrawing from the bank...

So far, these people said, most customers and clients remained committed to Citigroup....

But with Citigroup’s troubles opening a new chapter in the long-running financial crisis, government officials said that the Treasury Department was considering whether to ask for the second half of the $700 billion rescue fund approved by Congress in September.

It was unclear whether any of that money would be used to make a cash infusion into Citigroup, which received $25 billion from the government in October. A second financial rescue for banks might be difficult politically at a time that the struggling auto industry is being turned away in Washington...

“If there’s a flight from Citi’s stock, that’s unfortunate, but I don’t think that’s the government’s business,” said David M. Walker, the president of the Peter G. Peterson Foundation and a former United States comptroller general.

Mr. Walker said that the government should be concerned about Citigroup only if there were a run on the bank that threatened the financial system. The government should not, he said, be concerned about shareholders.

Some executives, however, argued that it was important to protect Citigroup’s shareholders because if they lose their investment, that will send other bank stocks diving.

Among the other ideas being bandied about Washington and the halls of Citigroup would be an assisted merger between Citigroup and another major bank. The merger might be structured with government assistance based on the blueprint that was developed for the Wachovia and Citigroup merger.

That deal ultimately did not go through because Wells Fargo stepped in with a higher offer, but it would have involved the Federal Deposit Insurance Corporation sharing the losses on $312 billion of Wachovia’s loans with Citigroup. Citigroup would have absorbed the first $42 billion in losses, and the government would have absorbed the rest. The F.D.I.C. would have been given $12 billion in warrants and preferred shares of Citigroup in exchange.

That structure could be used in a merger, but this time around, the government would be absorbing losses on Citigroup’s loans. But it remains unclear what other bank is in a strong enough position to merge with Citigroup.

Inside Citigroup on Friday, some angry senior executives said that the government had “allowed” Wells Fargo to take Wachovia from them, people at the firm said. They argued that had Citigroup and Wachovia been allowed to merge “we wouldn’t be in this position,” one executive said.


Yves here. This certainly seems to confirm Hempton's theory. Back to the article:

Another option might be for the government to purchase a large chunk of Citigroup’s assets in one swoop. Such an action could be structured similarly to the proposed deal in Switzerland for UBS. A spokesman for UBS, Mark Arena, said on Friday that the arrangement would allow UBS to have “one of the cleanest balance sheets of our peers.”

At the time of the deal’s announcement in October, Jean-Pierre Roth, president of the Swiss National Bank, said the government had the time to wait for the values of the assets to improve. “UBS does not have time,” Mr. Roth said.

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Citigroup May End Up With U.S. Government Rescue (Update1)

By Christine Harper and Bradley Keoun

Nov. 22 (Bloomberg) -- The U.S. government may step in to rescue Citigroup Inc. after a crisis in confidence erased half the bank’s stock-market value in three days, according to investors and analysts.

Citigroup’s $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the U.S. government this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”

One option is for the Federal Reserve and U.S. Treasury to create a special vehicle to purchase bad assets from Citi. The Fed has already erected several such funds, such as the Commercial Paper Funding Facility, to provide liquidity to the financial system. Typically, the Treasury would provide some first-loss equity or insurance fee, such as $50 billion provided to the CPFF, to protect the central bank and give the fiscal authority a stake.

The arrangement allows the Fed to leverage the money provided by the Treasury with loans, enabling the purchase of assets worth a multiple of the money. Funding the purchases with loans makes them less onerous to the U.S. budget.

Working Relationship

“That is the working relationship they have settled into with the Fed providing $1 trillion of the funding and the Treasury providing the equity tranche,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

Citigroup management and some board members discussed “several options” for the company in a series of phone conversations with Paulson and New York Federal Reserve Bank President Timothy Geithner yesterday, the New York Times reported today, citing unidentified people involved in the talks.

Among those options were the possible replacement of Chief Executive Officer Vikram Pandit, a public endorsement of Citigroup by the government or a new financial lifeline, the Times said. No decisions had been taken as of late yesterday, it said.

‘Regulatory Intervention’

While Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake the confidence of creditors, clients and rating companies. A similar scenario played out at Lehman, when Chief Executive Officer Richard Fuld declared the firm was “on the right track” five days before the firm went bankrupt.

“The market may be implying some sort of regulatory intervention,” Jason Goldberg, a former Lehman analyst who now works at Barclays Capital in New York, wrote in a note to clients yesterday. “In situations where the government has stepped in, the equity holders have not fared well.”

Pandit told employees yesterday that he doesn’t plan to break up the company, aiming to reassure workers as the stock resumed its skid. Citigroup shares dropped 94 cents, or 20 percent, to $3.77 in New York trading, giving the company a market value of about $21 billion. The stock pared its loss after the close of official trading, fetching $4.07 as of 4:35 p.m.

Pandit, Crittenden

Pandit and Chief Financial Officer Gary Crittenden, speaking on a worldwide conference call yesterday, also said they don’t expect to sell the Smith Barney brokerage unit, according to two people who listened to the call and declined to be identified because it wasn’t open to the public.

The call came as Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons, prepared to meet yesterday at the bank’s headquarters in New York, said a person familiar with the company’s plans who declined to be identified because the deliberations are private. Bischoff, interviewed at a conference in Portugal yesterday, declined to comment on any potential changes to the board.

“Providing stability” and “securing the future” are the themes of a new print advertisement that Citigroup plans to start running tomorrow in major markets in the U.S. and overseas. “Now, more than ever, you can feel confident that Citi never sleeps,” the ad reads.

No. 5 By Value

Once the biggest U.S. bank, with a market value of $274 billion at the end of 2006, Citigroup has now slipped to No. 5 behind Minneapolis-based U.S. Bancorp. A plan by 51-year-old Pandit this week to cut costs by shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal didn’t assuage shareholders’ concern that bad loans and securities writedowns may extend a yearlong run of net losses totaling $20 billion.

“To be consistent with the last few government interventions, I don’t think Citigroup’s going to be allowed to fail,” said William Fitzpatrick, an analyst at Optique Capital Management Inc. in Milwaukee, which oversees about $1 billion and doesn’t own Citigroup shares. “This company’s too intertwined with the rest of the financial system to allow any further deterioration.”

Citigroup spokesman Michael Hanretta declined to comment. On the call yesterday with employees, Pandit said the company’s capital and liquidity are strong.

Including a $25 billion capital injection from the U.S. Treasury under the $700 billion Troubled Asset Relief Program, the company has at least $50 billion of capital above the amount required by regulators to qualify as “well capitalized.” Capital is the cushion banks must keep to absorb losses and protect depositors.

‘Special Case’

Deutsche Bank AG analyst Mike Mayo wrote in a report yesterday that the bank’s $25 billion of reserves, when combined with other resources, “should be enough to cover estimated cumulative losses of $50 billion on loans.’” Mayo rates the stock “hold” and has a $9 price target.

“With Citi being as big as they are, the government will make a special case and step in and find another reason to dispose of more TARP funds,” said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $2.9 billion and doesn’t own Citigroup stock or debt.

Pandit was appointed last December to succeed Charles O. “Chuck” Prince, who was ousted as mortgage-bond writedowns saddled the bank with a record fourth-quarter loss of almost $10 billion. Prince was the handpicked successor of former Chairman and CEO Sanford “Sandy” Weill, who built the company through a series of acquisitions over 17 years before stepping down in 2003.

Deposits Said Safe

Bischoff, 67, was Citigroup’s top executive in Europe until he was named chairman when Pandit became CEO.

Bank employees have been telling customers their deposits are safe, and so far corporate clients haven’t moved their money elsewhere, said three people familiar with the matter who declined to be identified because they weren’t authorized to speak publicly about the accounts.

Crittenden, 50, has told colleagues it would be unwise to make hasty decisions to dispose of good businesses to satisfy investor demands for a show of action, one person familiar with the matter said.