Despite its motto, it appears that Citigroup Inc. may be sleeping. The troubled bank lost
$9 billion Wednesday in the market even though the U.S. Treasury has already invested $25 billion from its $700 billion Troubled Asset Relief Plan funds. Shares are trading below $6 Thursday morning, and investors such as Saudi Prince Alwaleed bin Talal
are taking advantage of the cheap stock, hoping that trading on Citigroup will awaken once again. All of the events have prompted a ton of chatter and fear in the marketplace concerning Citigroup. But let's face it, Citi simply cannot fail because that type of failure would be a complete shock to the entire U.S. economy. So the questions seem to be: 1) Will Citigroup recover as Prince Alwaleed is betting? or 2) Will Goldman Sachs Group Inc.
approach Citigroup to try to acquire it again?
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Prince Alwaleed, Citi's largest shareholder with a 5% stake, clearly has faith in the bank because he just increased his stock in the company by 1%. At the current share price, the purchase of 1% of Citigroup's outstanding stock would cost about $349 million. Alwaleed reportedly called the stock "dramatically undervalued." Indeed, so far this year shares of Citigroup have fallen 78%, and over the last three days the shares have lost one-third of their value. So what spurred the sell-off?
The selling started after The Wall Street Journal reported last week that Citigroup was considering replacing Sir Win Bischoff as chairman. Further sell-offs of the stock accelerated after it announced the elimination of 52,000 jobs. According to mass media reports, investors are concerned about Vikram Pandit's restructuring plan, which includes cutting expenses by 20%. Other reports say that investors are concerned because credit default swap spreads on its debt widened after the bank took on more than $17 billion in assets from structured investment vehicles and shut another hedge fund Wednesday. This led to an increase in counterparty credit risk in the derivatives market, according to Credit Derivatives Research. The Wall Street Journal says it's because investors received a disclosure that this quarter the firm would reclassify about $80 billion in assets. The article states:
Those assets wouldn't have to be marked to market prices. Or they could be held in a way that keeps such losses from hitting earnings. That has unnerved investors, especially since the holdings involved aren't garden-variety assets. Instead, they include risky holdings such as collateralized debt obligations -- structured securities that have already led to billions in write-downs.
And yes there is panic, but is it because everyone wants to read the hard-to-find Wall Street Journal's online doom and gloom story about a panicked Pandit (the story initially appeared on Google, but led to a blank page as Joe Wiesenthal points out over at Clusterstock)? Whatever the reasons Citigroup's shares and market cap are plummeting, as Heidi Moore over at Deal Journal points out.
But enough about what bloggers are saying; let's turn to the rabble babble on the Yahoo! and Google message boards for an answer to see what the little guys think:
It doesn't seem like there is much consensus amongst the rabble, but if you care to join in the discussion, then leave a comment below.
- Maria Woehr
