| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
 There's been a lot of chatter about the future of Citigroup Inc. (NYSE:C), which has driven the company's shares to a three-month low. This isn't positive news for Citi, the government or taxpayers as the government is looking for a way to unload its 34% stake in the troubled bank at a profit.The chatter has gotten so bad that Dick Bove, an analyst at Rochdale Securities, said on Monday that "articles are still being written about the bank being too-big-to-fail. It is no longer in that rarefied group. In reality, Citigroup does not exist any longer," according to The Wall Street Journal. In a way, Bove is right; Citi has become a different company, a plagued company, but one that is still too-big-to-fail. There's no way that the government could really pull out now and expect Citi to keep on ticking. Besides the increasing commercial loan losses, the bank is also being weighed down by an increase in nonperforming assets. Motley Fool pointed out on Friday that a Calyon Securities analyst wrote in a note that the bank could take a $10 billion write-down on its deferred tax assets in the fourth quarter. If a company expects that it won't be able to generate enough taxable revenue in the future, it is forced to write down some of its deferred tax assets. That write-down could come when the government pulls out of Citi. So it's not really all that surprising that Citigroup is waiting for the other shoe to drop and holding onto its $244.4 billion in cash and deposits of $131.4 billion. As Bove told Bloomberg, it makes no sense for Citi to hold onto that cash and Pandit has no choice: "I don't think it's something to either praise him for or criticize him for. That's simply the fact. You either keep that cash or you're dead." (That's probably not what the government had in mind when it originally loaned Citi the money as part of TARP, but after stress tests, more bailouts and stock plummets, what other choice does the bank have?) Further troubling Citi has been the political pressure to sell off assets -- such as Phibro and now maybe Banamex -- that actually generate revenue. These assets may be just a couple of several attractive assets the company has to put up for sale. The others have been sitting on the block for months and may be for some time as bidders for toxic assets are few and far between these days (The Deal Pipeline subscribers can see assets on the block here). What kind of bank Citi will become is an unknown, as The New York Times reports in its weekend feature, Can Citigroup Carry it's own Weight?. And there's no one better to communicate that sort of abstract strategy than CEO Vikram Pandit himself:
Mr. Pandit said he
was working with federal regulators on a schedule for paying back TARP
funds, which he said was crucial to restoring Citigroup's image among
consumers. "It's very hard to change perceptions in this marketplace,"
he said. "We are not a troubled bank. We have a lot of assistance from
the government. We can't fight that." So I agree with Baseline Scenario when it says Citigroup needs is a strategy -- a clear one in order to regain confidence in the marketplace and from politicians. A global strategy probably isn't going to cut it, especially after your institution has just divested a ton of international assets and is continuing to put more on the block. As James Kwak writes: If you're making money, people will overlook the fact
that your company doesn't make any sense; if you're struggling, like
Citi is, they won't.
Without such a story, it's just a tangled mess of bad acquisitions that
have no reason to be together... Instead, a year after the crisis that would have put it out of business
without extraordinary government assistance, instead of a strategy, all
Citi has is a pro forma financial statement: the arbitrary division
between "Citicorp" and "Citi Holdings." As other people observed at the
time of the split, there was no sound logic for how the company was
split up. For example, North American retail banking and credit cards
are on one side, but mortgages, auto loans, and student loans are on
the other. So their plan is to run a retail bank that doesn't lend
money to households? Oh right -- they'll take the deposits and invest
them in CDOs. Analysts at Fitch Ratings expect Citigroup will continue to struggle through 2010 due to hefty loan loss provisions and weak operations. With more losses on the way, there's no easy answer for Citi. However, knowing where the bank is headed and conveying to shareholders continuously how it plans to cut down on losses would probably give them enough transparency to regain some trust and confidence in the institution. - Maria Woehr Follow me on Twitter @newsgirlmw
CategoriesComments
From: Maria Woehr
 ,
Thanks for that bit of additional research, Wow.
Posted on:
November 4, 2009 4:10 PM
 Deal Video
    Community
 Elsewhere on The Deal.comDealwatch
The Deal MagazineCorporate Dealmaker
The Deal VideoCategories
Blog roll
Archives
| |||||||||||||||||||||||||
|
|
|
|
|
Wow, this article is really poorly researched and written but does summarize the baseless speculation regarding Citigroup quite nicely.
You forgot to mention that over the longer term the planet will cease to exist and Citigroup shares will be worthless.