Tuesday, March 10, 2009

Citigroup: The $1 Stock That Can't Stay Out of Headlines

It used to be that after a particular stock dropped into the single digits, investors just stopped caring.  The company was delisted from its corresponding exchange and relegated to the indignity of trading on the pink sheets.  Then, maybe seven years later, some headline declaring the company's bankruptcy would hit, you'd scratch your head and say "Hmmm.  Didn't that stock used to trade at $70?  I can't believe it took them this long to go bankrupt." (i.e. Lucent)  So why is it that I pick up the paper every day and have to continue to read about AIG and Citi?   Haven't they done enough damage already to investors and taxpayers' wallets?  The answer, of course, is "yes", but unfortunately the fate of capitalism itself lies in their hands.

The Wall Street Journal brings news of yet another "contingency plan" for Citi, as if three bailouts, the most recent merely a week ago, weren't enough.  According to the Journal, regulators are merely trying to ensure that they are prepared if Citi takes a sudden turn for the worse, which, by the way, they aren't expecting, but, you know, just in case.  Apparently, regulators including the Treasury, the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC and the Post Office (ok, not really, but I hear the Postmaster General was pissed he wasn't included) were involved in discussions with Citi executives over the weekend.  Regulators say that the planning should be seen as a normal function of government during a financial crisis.  Talks of a "bad bank" to take distressed assets resurfaced yet again, as if we hadn't beaten this dead horse to a pulp enough times, but officials were considering other approaches (aka they have no idea what to do other than spout the words "bad bank" every couple of days.)

Citi's beleaguered CEO Vikram Pandit leaked news of actual profitability at Citi for the first two months of the year.  According to the Journal, Citi is having its best quarter in a year and a half, which honestly isn't saying much as the company has puked $40 billion? $50 billion?  Does anyone even keep track anymore?  Apparently, the bank posted revenue - excluding asset write-downs - of $19 billion in January and February.  For the full quarter, earnings before taxes and set-asides for problem loans are $8.3 billion.  Given how many write-downs and set asides for problem loans Citi continues to take, I'm fairly certain that these "profits" are somewhat meaningless.  Honestly, credit spreads are at record wide levels and the bank can finance everything at 0%, so yeah, they're obviously making money financing their inventory.  But who cares if they have $100 billion more in write-downs coming?  That's the only number that matters.  If Citi can have one quarter, just one, where earnings are actually positive DESPITE write-downs and set asides, that $1 stock might start to look pretty tasty.  Otherwise, get back in your $1 hole and stay out of my newspaper. 

2 comments:

Reggie said...

SUNW still holds the record for single-digit stocks that the most number of people didn't give up on. C has a looooong way to go to catch them.

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