$3.77 – Closing price of Citibank today. Investors have seen similar stories this year, with Bear, Lehman, Merrill, and the endings are very unpleasant when consumer confidence falls. Looks like the end is in sight for yet another great American company: Citigroup, once the biggest U.S. financial institution of them all, looks like it is dangerously close to merging, tanking, folding, failing, falling or however else you want to say it. The shares fell today to a 12 year low even while there was a big rally in the market.
Citi Never sleeps - The once famous phrase used to describe the company may just be used for the last times in the coming weeks (or should I say days) Looking back, I guess the whole idea behind Citigroup was flawed from the start. Unbeatable scale in financial services? Forget it. We now see the good Citi's size has done for investors: the company has an unworkable business model. It is run by a senior management team that's largely unproven, with scant experience operating a large financial institution. And the company's risk controls (if the past few years are any evidence) are hopelessly inadequate to the task. While the conventional wisdom says Citi is too big to fail, the reality is it's too big to manage. As a result, the company has become a publicly traded incarnation of Murphy's Law: anything that can go wrong almost certainly will-and probably sooner rather than later. And $25 billion in TARP money isn't going to do much to turn things around. Worries about Citigroup’s problem assets will continue to weigh down investor confidence. Citigroup’s shares have traded as high as $35.29 in the past 52 weeks. It closed today under $4. Its market capitalization (market cap) – the actual value of a publicly traded company – has plunged from $195 billion at the stock’s 52-week high to just under $21 billion today.
Citi Never sleeps - The once famous phrase used to describe the company may just be used for the last times in the coming weeks (or should I say days) Looking back, I guess the whole idea behind Citigroup was flawed from the start. Unbeatable scale in financial services? Forget it. We now see the good Citi's size has done for investors: the company has an unworkable business model. It is run by a senior management team that's largely unproven, with scant experience operating a large financial institution. And the company's risk controls (if the past few years are any evidence) are hopelessly inadequate to the task. While the conventional wisdom says Citi is too big to fail, the reality is it's too big to manage. As a result, the company has become a publicly traded incarnation of Murphy's Law: anything that can go wrong almost certainly will-and probably sooner rather than later. And $25 billion in TARP money isn't going to do much to turn things around. Worries about Citigroup’s problem assets will continue to weigh down investor confidence. Citigroup’s shares have traded as high as $35.29 in the past 52 weeks. It closed today under $4. Its market capitalization (market cap) – the actual value of a publicly traded company – has plunged from $195 billion at the stock’s 52-week high to just under $21 billion today.
I think it is better for the management to move quickly to sell parts of the company or merge with someone else (Goldman and Morgan Stanley have been mentioned).Citi has notched losses in each of the past four quarters, including a $2.8 billion loss in the third quarter, and has taken in excess of $40 billion in write-downs. With news like 52,000 job cuts and slash expenses by 20% just weakens the confidence and is not helping its stock. Most institutional investors and pension funds are barred from owning stocks below $5. So if Citigroup's stock remains below that level, it could trigger a wave of selling that would send the share price even lower. Though not immediately, the money managers have to get out before the end of the quarter if the price does not bounce back.
On the upside, Citi does have a strong franchise overseas and there is no sign anyone is making a run on the bank. It has sufficient liquidity and is in a comfortable position capital wise. All the institutional traders are still doing business with the bank. But the question is, can Vikram Pandit withstand the pressure or will he give in and do a deal or even sell of pieces of the company to appease the public sentiment.
On the upside, Citi does have a strong franchise overseas and there is no sign anyone is making a run on the bank. It has sufficient liquidity and is in a comfortable position capital wise. All the institutional traders are still doing business with the bank. But the question is, can Vikram Pandit withstand the pressure or will he give in and do a deal or even sell of pieces of the company to appease the public sentiment.
It's getting to the point where it's make-or-break time. The only thing going against Citi is the loss of confidence and it may just be strong enough to bring the behemoth down to its knees. If today is any indicator, Citibank in its present form cannot, and almost certainly will not, continue to exist.
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