Citi's Desperate Straits
Felix Salmon
About this author:
America, we have a problem. Citigroup (C) is the largest bank in America, with a balance sheet of over $2 trillion -- and it's also the most dysfunctional. Since Vikram Pandit took over, Citi has lost not only $20 billion but also more than 70% of its market capitalization, making it now worth significantly less than, say, Genentech (DNA). Cue major board-level squabbles:
The board of Citigroup Inc. is growing increasingly dissatisfied with the financial giant's performance, and some directors are considering replacing Sir Win Bischoff as chairman...
The possible replacement of Sir Win comes as the New York company's board is adopting an increasingly assertive stance toward overseeing Chief Executive Officer Vikram Pandit and his tightknit team of executives. Those executives took power last December after Citigroup's previous CEO, Charles Prince, stepped down amid mounting losses. Some directors have grown concerned that Sir Win, who is based in London, hasn't been exercising adequate oversight...
Over the summer, several directors complained to Mr. Pandit that he hadn't adequately kept them in the loop about his plans. In recent months, the board has been holding meetings twice a month and trying to be more assertive about supervising management decisions. That change has irked some Citigroup executives, who said the board's involvement in the negotiations to buy Wachovia Corp. slowed the process and gave Wells Fargo & Co. time to re-emerge with a superior offer.
So the board's unhappy with management, management's unhappy with the board, and, to top it all off, the chairman now looks like he's going to be ousted in a high-level coup. This would be farcical if it wasn't so tragic.
Back in June, I was already worried about Citi being too big to rescue -- and that was before the TARP even existed, let alone was divvied up among dozens of different institutions. Citi closed on Wednesday at $9.64 a share -- a level which prices in a very high probability that the stock will go all the way to zero.
Citi might well turn out to be Hank Paulson's largest and biggest headache. There's no one he can sell it to -- it's far too big already. Which means that Paulson's only real option, if things deteriorate much further from here, is nationalization. Bits of it could be sold, at a price -- the retail bank to Santander, perhaps; other bits to JP Morgan (JPM) or Goldman Sachs (GS) -- but the losses to the taxpayer would be enormous, and the disruption associated with breaking Citi up and then trying to integrate the pieces in the middle of a major financial crisis would likely be devastating to the economy.
The one option being mulled right now -- replacing Win Bischoff with Dick Parsons -- is clearly taken straight from the deckchairs-on-the-Titanic playbook. Parsons, remember, is the man about whom Joe Nocera said that "all his professional life, he's wanted to be seen as someone who never seems to break a sweat". In any case, Bischoff isn't the problem. The problem is that Vikram Pandit gave himself altogether too much time to get smaller, and then decided his best chance at salvation was to get bigger -- by buying Wachovia. Now, it's too late: the die has been cast. Will Citi buy Chevy Chase Bank? It really doesn't make any difference either way.
In rough seas, it helps to be big and heavy -- up to the point at which it helps to be smaller and lighter. Citi is the biggest and heaviest ship in a storm of unprecedented magnitude, she's creaking badly, and there's nothing the captain can do about it: You can't fix a vessel like that in the middle of a hurricane. All you can do is hold on tight, and pray.
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This article has 16 comments:
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prescient11
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109 Comments
Nov 13 09:43 AMOf course, I hope the sarcasm comes through clear enough as there is no analysis in this piece. Why do you write such tripe?
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investor88
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744 Comments
Nov 13 09:54 AM-
Smarty_Pants
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1114 Comments
My Website
Nov 13 10:15 AMTough toenails. I was under the impression that the board called the shots as the direct representatives of the shareholders (you know, the acutal owners).
Even so, it appears that the board is trying to close the barn door after all the horses have run off into the hills.
Expect TARP II to emerge from the woodwork soon enough. There aren't enough taxpayer dollars being printed and wasted as it is now.
As for the executives, they already have donned their 'golden lifejackets'. They've already done their preying, it's the shareholders who need divine intervention.
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JasonC
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367 Comments
Nov 13 10:21 AMCiti had operating cash flow of plus $45 billion last quarter.
It repaid $28 billion in debt and grew cash $18 billion.
The shrink by loan run-off strategy they are pursuing it working just fine, and is forcing epic cash flows in their own direction. Main street may not enjoy the fallout that can cause for final demand, but there is no way you go bust raking in $180 billion a year in cash.
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sumosama
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237 Comments
Nov 13 10:25 AMWould love to buy 10k shares at current price to hold for long period (10 years) to see where the shares are then. Citi went through the same share price issue in the early 90's.
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James Wilson
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133 Comments
Nov 13 10:33 AMI believe this whole crash is a staged event. Most wealthy insiders cashed out back in may thru July. Then they nursed the companys along, it seems, to aviod insider trading jail time.
Spitzer was too good so they moved him up and when Sptizer wrote of Bush fighting state to allow Predatory Lending and prevent consumer protection laws from saving many homeowners Spiters was busted cheating.
Don't mess with the Bush !
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lsully999
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3 Comments
Nov 13 10:51 AMAm I the only one who remembers that this entity is supported by a middle eastern prince ? Cit's share price may drop - but this company is absolutely going to survive.
JasonC has a point; but it is also were noting that, after the TARP infusion, Citi's Tier 1 capital is in excess of $100.0 billion; they also have loss reserves of $25.0 billion. That's a heck of a lot of cushion.
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iThinkBig
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1053 Comments
My Website
Nov 13 10:58 AMOn Nov 13 10:51 AM lsully999 wrote:
>
> Am I the only one who remembers that this entity is supported by
> a middle eastern prince ? Cit's share price may drop - but this company
> is absolutely going to survive.
>
> JasonC has a point; but it is also were noting that, after the TARP
> infusion, Citi's Tier 1 capital is in excess of $100.0 billion; they
> also have loss reserves of $25.0 billion. That's a heck of a lot
> of cushion.
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Emerald
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177 Comments
Nov 13 12:01 PM-
pelican
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38 Comments
Nov 13 12:33 PMWhy? Are you saying that any stock that trades under $10/share has a "very high probability of going to zero"? Or is there another reason that the current price level is such a good indication that zero is in the offing? Please enlighten.
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iansane
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16 Comments
Nov 13 01:30 PM-
Cesar
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24 Comments
Nov 13 02:42 PM-
Hazy Davy and The Mission Man
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1 Comment
Nov 14 08:50 AM-
Based_in_Fact
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1 Comment
Nov 14 03:41 PMI agree C has issues. It will fail if talking heads like you continue to talk it down and start a deposit run. Your articles on C verge on offensive. Do you benefit from such incredibly biased commentary ? Disclose your position in C. Are you short ? Are family members short ? This should be disclosed. Not disclosing such an important detail, is unethical. And I would argue "criminal" in a moral sense. Please disclose !!
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Mowog
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67 Comments
Nov 14 09:51 PM-
fatcat
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486 Comments
Nov 15 06:32 AM