The recent meltdown of financial giant Citigroup Inc. has played out like the downfall of Britney Spears. Every catastrophe seems to be followed by another one. And despite the setbacks leading to rumors of Citigroup becoming an acquisition candidate, the firm announced Monday the purchase of Metalmark Capital for
an undisclosed amount.
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Citigroup was doing fine until the subprime meltdown over the summer, which caused massive losses, the expulsion of its chief executive, and the refusal from most of the banking world's top executives to take the CEO spot. But despite its troubles, the firm added to its girth Monday with purchase of Metalmark, a private equity firm run by Howard
Hoffen and other former members of Morgan Stanley Capital Partners — a move that will surely lead to more speculation of Vikram Pandit ascending to Citi's corner office.
Before the Metalmark announcement, analysts at CreditSights Inc. said that Citigroup's colossal damage from the subprime meltdown could force it to merge with a company that has a stronger financial balance sheet, such as J.P. Morgan Chase & Co. CreditSights isn't the first to suggest a deal. The earliest rumors surfaced two weeks ago when The Wall Street Journal
reported that Bank of America might acquire Citigroup.
The research house says a deal for Citi would cost in the $200 billion neighborhood, slightly above Citi's current market capitalization of about $172 billion. With J.P. Morgan CEO Jamie Dimon formerly of Citi, CreditSights infers that his past relationships at his former workplace and knowledge of Citi would help merger negotiations.
But the hypothetical deal is just that — hypothetical. Citigroup's losses are massive, with some accounts racking up $66 billion in exposure to structured investment vehicles. Who in their right mind would want to plunge into that risk? If anything, J.P. Morgan would benefit more by waiting and watching its giant competitor crumble even more, then offer to purchase — at a discount, naturally — certain units that would only be advantageous to its core holdings. Who knows, maybe in a year or two J.P. Morgan will buy Metalmark from Citi. — Gerald Magpily
See story from Reuters
See Dealscape: Pandit likely to take Citi's vacant corner office
See Dealscape: A Citi-BofA merger? Why Bother?
See Metalmark story from DealBook
