TheStreet.com's Jim Cramer says this bank is too big to be ignored by the government; if it goes, we all go.
Citigroup (NYSE: C)'s (Cramer's Take) to blame for so much that is wrong right now that it seems imperative that someone step in and renounce most of the actions that Chuck Prince put into place and bail out the other parts swiftly to become a plain old bank (POB?) as soon as possible.
We are quick -- depending upon political orientation or sensibilities -- to blame either the aggressive lenders or the irresponsible borrowers. I don't even care any more. What matters is capital, raising capital fast and Citigroup must quickly dismantle the acquisitions Prince made, including the disastrous Japan incursion, and then start selling off businesses and get the government to help bail it out by injecting itself into the structured investment vehicle process. The time has long since passed to worry about moral hazard. The action in Citigroup is critical right now because of a series of horrible decisions made by Prince to get much bigger in mortgages right at the end of the boom.
It must sell its mortgage servicing portfolio, too, agreeing to give some guarantees for some amount of money owed to the buyer as servicing rights can be a lucrative business. The fact that Treasury seems "somewhat" engaged (my quotes) is not enough. The problem at this bank is too big to be ignored by the U.S. government. Put simply, if Citigroup goes, we all go.
Now, while I may not care about the moral hazard, a word should be said about Prince. I had been calling for this man's head for a year now because it was obvious to pretty much everyone I talked to in the business that Citigroup was taking on more and more risk as Prince tried to cover up the terrible day-to-day management that had led to restructuring after restructuring. He had zero leadership skills and divisions ran amok. I want to distinguish this situation from Countrywide (NYSE: CFC) (Cramer's Take) and Washington Mutual (NYSE: WM) (Cramer's Take), both of which were simply trying to take market share in what turned out to be a stupid and reckless way. Both Angelo Mozillo and Kerry Killinger are to blame there, but I don't think either can bring down the system like a failed Citigroup can.
Every time I called for Prince's firing I know I was dismissed as a gadfly, even as it became clear that this one man's action had the capability to become this time around's Long Term Capital. In fact the whole time I have been saying this mess could bring everything down, I have been viewed as an emotional pop-off even as it was clear to me that someone had to scream about this stuff to wake the Fed up. It thinks its job is done but no one else is screaming so we are going to get some big failures before they cut and we are back to becoming a growth economy again. The two-year tells you where we have to cut to, just in case you are wondering what level I believe we have to go to save the system.
Now it is time for the grown-ups at Citigroup to sense the urgency of the situation and quickly undo a year's worth of travesties, or maybe even a couple of years. Citigroup needs to make those sales or its cost of capital will be prohibitive and its dividend will be slashed, which would lead to a halving of its stock price. If the correct actions are taken the stock will turn out to be a screaming buy because of its large deposit base, but if they aren't, we will be thinking that Citigroup needs to be merged or sold.
Put simply, the legacy of Prince, so bad, so horrible, must be repudiated now or it will cost the system a great deal later. I don't think Bob Rubin is the man to do this, as he was instrumental in watching Prince crush the franchise.
Regardless, someone must step in fast. This situation it the most critical situation out there and will serve as the blueprint to get out of this mess. But right now, they aren't even trying.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Citigroup.
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Reader Comments (Page 3 of 3)
11-26-2007 @ 7:19PM
Debra said...
Cramer has been a tremendous fan of free markets, ramming free markets down everyone's throats. Cramer is such a hypocrite. If this is the crash of 1929 as you so hysterically predict, then you can always where a sign around your neck stating, "Will not work for food." Live or die by the free markets, Cramer. Live by your own BS.
11-26-2007 @ 8:43PM
AandR said...
Lou Dobbs for President !
2-22-2008 @ 7:57PM
Brennan said...
Ditto
11-26-2007 @ 9:35PM
Angela said...
You are long on Citigroup. That must be why you want a bailout. The common stock has been hammered. It seems what you are concerned about is the value of your holdings and you want the taxpayer to bail you out. Since you are so in favor of the free markets, ride it out. This is capitalism for you, Cramer, you con artist. You cannot have it both ways---free markets and bailouts. I believe in no bailout of any kind. If you cannot stand the heat, get out of the kitchen. I shorted Citi and have made a bundle. It seems I am smarter than the dummy experts like you. Hope you keep losing. The more the stock falls, the more money I make. Nobody ever said capitalism has a heart. Get a subprime mortgage if your credit rating goes bust. It seems now you are a socialist, looking for a handout. Capitalism is the best system, and there is no room in a capitalist system for bailouts. Common stockholders can reap the greatest gains and the biggest losses. Everyone knows that. If you want protection put your money in FDIC insurance deposit accounts. Instead you are a greedy, lying bum full of bull.
11-26-2007 @ 10:50PM
arthur Rubin said...
Meaningless words, Cramer. C is going down. It will be at $19 by the end of the first quarter of 2008. The purchase of $7.5 billion in equity today by an oil-rich emirate is a sign the end is near. Why didn't they sell more? Because even the oil idiots know there is too much risk. Alwaleed is on the hook for billions. Can't wait for him to lose his shirt, er, dress. C, MER, BAC, E-Trade, etc. are all going down and they are gonna take the rest of the market with them. Sell stocks short, buy puts and sit back. Relax. Watch all these companies go under.
11-27-2007 @ 12:57AM
John Lysek said...
They are your boys Cramer, YOU bail them out.
11-27-2007 @ 10:28AM
Steven said...
Well folks - it looks like your gas money is coming into C as well as Fed money. Jim is too smart to put his money in now he will wait for a big move in the stock and then make a killing. He's not stupid like the rest of us. Citi is paying 11% for this money, what do they give us for our deposits? So we fools pay high prices for gas and oil, get nothing for our cash deposits, pay taxes that the fed will use to feed the banks. The smart ones like Jim will make a fortune off this.
11-27-2007 @ 2:41PM
BigTom5 said...
From looking at some of these postings, there are more idiots on the internet than in Washington.
11-27-2007 @ 4:41PM
ATHELSTAN said...
Citigroup despite the confidence placed in it by Abu Dhabi, is still a bottomless pit of snakes and snakeoil. Too many problems remain for America's biggest bank and I am loathe to put any money into this Ponzi scheme until there is much more clarity. Even if it means buying in at a much higher price.
Too many hucksters in the financial media have been hot on financial stocks for months now. Do not listen to them. Any investment in large money banks and most regional banks too right now, to put it mildly, is premature.
12-03-2007 @ 10:14PM
Terry Finn said...
Jim, these simpletons just don't get what you are saying. They have been brainwashed by the media for years that "Big Business" (i.e. Citgroup) is their enemy. Let them have their wish. Let's see how we will be treated by the Chinese, the Russians, and the Middle Easterners when we no longer have big U.S. banks and big U.S. oil companies battling for our share of the pie. Yes, then we can join other poor nations and beg for a bread crumb.
1-08-2008 @ 6:56PM
suzie said...
it appears to me that most everyone is to blame. the government acted as wreckless as the lenders, bankers, mtg brokers, and dont forget the populas. 1st the government required lenders to make the amewrican dream easier to obtain by lowering credit standards. secondly, many people obtained houses to flip them or cash out of them to let them go into foreclosure so they could walk away with the cash. lets also not forget about the many people including reealtors and the high and mighty bankers who like to stay out of this and point fingers getting straw buyers to purchase the homes they had bought from a foreclosure to rape the system and steal the cash. lets not forget all the bank fraud from EVERY GREEDY SOB out there. the heads of all the lenders however did make out like bandits. they knew the margins and the profits. they allowed it but to point fingers at certain people is just a plain liberal point of view grow up boys and girls were all to blame