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 With its stock in free fall and options running out, Citigroup Inc.'s board of directors is meeting Friday to try and help management stop the bleeding. With its stock at a 15-year low, rumors about what actions management is taking are swirling with layoffs and cost-cutting underway, and the purchase of more stock by management and Saudi Arabian billionaire investor Prince Alwaleed bin Talal having done little to calm investor fears.
A report on Bloomberg said that the bank's board of directors will meet Friday in hopes of helping to stop the bleeding, and a New York Times story said that CEO Vikram Pandit will meet with his senior managers Friday in order to update them on the bank's condition.
The Wall Street Journal is reporting that the situation at Citi has grown serious enough that Pandit is scrambling for a lifeline, including the selling units or even the entire bank. However the Times said that management isn't actively considering a sale or split up of the bank. Investors have slammed the stock over the mounting losses and write-downs coming out of the bank. Until markets are convinced that all of the toxic assets stand revealed, it's likely that the company will continue to be punished. The loss of faith in Citi's prospects is reflected in the spreads on the bank's credit default swaps, which gapped larger on Thursday, hitting an astounding 400 basis points, up from roughly 360 basis points Wednesday, according to Phoenix Partners Group. Issuers of the swaps are now charging double what they wanted last week for contracts to pay out in case Citi can't make a debt payment. The Deal's Peter Moreira writes: The main problem is investors are not convinced the bank has enough capital to withstand continuing losses, which have already amounted to $20 billion in the past year. The bank has raised $25 billion in capital from private investors in the past year, and has the right to tap the Treasury's Troubled Assets Relief Program for a further $25 billion. Saudi billionaire Prince Alwaleed bin Talal on Thursday endorsed the management team led by chief executive Vikram Pandit and said he would increase his stake to 5% from 4%, but the sell orders simply kept coming. The reports said the parts of the bank that could be sold off include its Smith Barney brokerage or its credit card business. The problem with those options is the sale price would be meager in the current environment and those businesses are needed to help Citi recover.Citi's management also has good reason to expect a lifeline from either the government or other Wall Street banks as it is the very definition of "too big to fail." With memories of the chaos that ensued after the bankruptcy of the far-smaller Lehman Brothers Holdings Inc. still fresh in everyone's minds, the chances Citi being allowed to slip into Chapter 11 are next to nil. The bank also maintains that it has a strong capital and liquidity position and is at least $50 billion over what regulator's consider "well capitalized." - George White See Bloomberg story See WSJ story See NY Times story See Dealscape post on Citi swaps Categories Deal Video
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