Will Citigroup become GM of banking?
Wake up and good morning. If the "Citi never sleeps" then how is it getting such a rude wake-up call? Perhaps the world's greatest icon of financial capitalism, New York's Citigroup Inc. is mulling the idea of putting itself up for sale. So says the Wall Street Journal this morning, which starts this way:
"Executives at Citigroup Inc., faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter."
Surely this is just talk, or maybe a "worst case scenario" that Citigroup's board is taking in the event of further stock swoons like Thursday's when already battered Citigroup shares drooped 26 percent. It was the worst one-day decline ever for the banking company. Worse, the fall occurred despite the announcement by Saudi Arabian investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud that, in further support of the bank's management, he will increase his holdings in Citigroup Inc. to 5 percent.
Citigroup's shares sit at a puny $4.71 but this is still a company with a market value exceeding $25-billion. General Motors, for perspective, has dwindled to just $1.76-billion in market value. Says the New York Times this morning:
"Within the bank’s Manhattan offices, television screens have stopped displaying the company’s stock price. Traders have begun making jokes comparing Citigroup to the Titanic."
Are we really on the edge of such significant shifts in the American and even global economy? Sure, anyone paying attention is reconciled to the notion that GM, Ford and Chrysler will either disappear or be radically altered. But Citigroup? More than 3,000 people in the Tampa Bay area alone depend on Citigroup for a paycheck and a reason to go to work. But globally, this is one mega-sized company of more than 300,000 employees.
What's ahead? Here's what the Wall Street Journal says, boiled down to three points:
1. In addition to pondering a move to sell the entire company to another bank, executives are exploring the possibility of selling off parts of the firm, including the Smith Barney retail brokerage, the global credit-card division and the transaction-services unit, which is one of Citigroup's most lucrative and fast-growing businesses.
2.In Washington, Citigroup officials this week have been urging lawmakers and regulators to intervene by making it tougher for investors to place bets that the company's share price will fall, a strategy known as "short selling," according to people familiar with the matter. Banks are lobbying the Securities and Exchange Commission to reinstate the ban it temporarily imposed this autumn on short selling of financial stocks.
3. Citigroup's board of directors is scheduled to have a formal meeting Friday to discuss the options. CEO Vikram Pandit scheduled a conference call for 8 a.m. today to discuss the situation with senior managers.
Here's my take. The financial karma at Citigroup is atrocious these days. Whatever it touches lately turns to dung. Earlier this week, in yet another move to fix a rotting infrastructure, the company said it would buy $17.4-billion in assets from its structured investment vehicles, or SIVs. These are complex investment tools that first encountered trouble last year due to their mortgage-related holdings.
Remember, this is the very same corporation that cut a deal with the federal government earlier this fall to -- start the laugh track now -- "bail out" crumbling Wachovia Corp. (Wells Fargo eventually seized it from a wimpy Citigroup.) Imagine Citigroup's current plight -- and Florida's given Wachovia's No. 1 ranking in the state banking market -- had the Citi-Wachovia deal gone through.
How bad could it get? Ask Hugh Hendry, chief investment officer at hedge fund Eclectica Asset Management. As he told CNBC this morning: We're heading fast for a nationalized financial system because the alternative is so much worse.
"All financials will be owned by the U.S. government in a year," Hendry said. "I bet you."
Now the cynic in me says that markets are being grossly manipulated by bears, day traders and short sellers who are driving worthy blue chip stocks down for big profits.
Like most folks, I have a theory, and like Hendry's prediction, it is just conjecture. The federal bailout plan essentially required the country's biggest banks -- Citigroup, Bank of America and JPMorgan Chase among others -- to accept billions in taxpayer dollars as emergency infusions to their capital. But it comes with some terrible and unintended consequences. It told investors worldwide that these banks can't cut the current crisis on their own. Maybe it sent a bigger message that a financial system awash with SIVs, GSEs and CDOs and too many other acronyms we apparently don't understand (and never did) is flawed.
And the leadership of the federal financial rescue plan -- including Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke and, increasingly scary, a waffling Congress? Well let's just say all these emperors wear no clothes.
-- Robert Trigaux, Times Business Columnist