"Although I remain bearish on the economy for the time being, I am turning more bullish on stocks," says Vahan Janjigian, editor of The Forbes Growth Investor.
He adds, "I believe stocks have fallen enough to be attractive to all investors except those with very short horizons. And my recommendation for Citigroup (NYSE: C) conveys my conviction that some of the best opportunities for long-term gains will come from the oversold financial sector."
"There is much debate about whether or not a recession is coming. In my view, it has already arrived. But whether or not it's an 'official' recession is largely irrelevant. The Federal Reserve is obviously so alarmed it has slashed interest rates at a record-breaking pace
"With more than 300,000 employees serving 200 million accounts in over 100 countries, Citigroup is a financial
services supermarket. But the collapse of the subprime mortgage market erased about $125 billion from the
company's market capitalization.
"Many financial institutions got burned by the subprime mortgage meltdown. Banks holding mortgage backed
securities (MBS) and collateralized debt obligations (CDO) were particularly hard hit. Citigroup suffered massive writedowns.
"On Oct. 15, the company said it was writing down $3.8 billion. Citigroup disappointed investors again just a few weeks later when it said it would writedown an additional $8-11 billion in Q4. CEO Charles Prince was soon replaced by Vikram Pandit and foreign investors began pouring money into the company on favorable terms.
"With Pandit at the helm, C revealed a sub-prime related writedown of $18.1 billion in Q4 and increased the loan loss reserve by an additional $3.85 billion. On a firm wide basis, net revenues fell 70% to $7.22 billion, overshadowing a 45% gain in international consumer revenues and a 27% jump in GWM revenues.
"Credit costs ballooned 231% to $7.76 billion. C also took a $539 million charge for a 4,200 headcount reduction.
Operating expenses increased 18% to $16.5 billion. Q4 saw a net loss of $9.83 billion or $1.99 per share, which
compared to net gain of $5.13 billion or $1.03 per share in the prior year quarter. C's Tier 1 capital ratio
fell to 7.1%.
"Citigroup still holds $37.3 billion in assets with direct exposure to subprime mortgages and the consumer lending
business is likely to deteriorate further. However, the company is serious about shoring up capital. It slashed
the cash dividend by more than 40% and raised an additional $18.65 billion through private and public placements of convertible and straight preferred stock.
"It is also selling non-core assets. These actions will dilute earnings per share, but they also improve the balance
sheet and give the company the flexibility it needs to navigate through this difficult period. Management believes the Tier 1 capital ratio has already improved to 8.8%, well above its 7.5% long term target."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
2-18-2008 @ 1:47PM
Banker24 said...
After studying Citi's earnings and downfalls over the past 6 months I have come to one conclusion. That conclusion is close up shop and regroup. They have expanded into markets here they have no clue as to what the local customer wants. A New York bank cannot expect blue collar workers to pay for everything from their bank. Citi's biggest issue in recent times is that they have expanded into markets and place new people in just about every role. So instead of season employees helping the development of new branch staff, they have newly hired or promoted people with little to no clue as to what the area needs. CT expansion was haphazard and ill-planned. Fairfield County is pretty well covered since that area has a high concentration of NY workers. Those people are use to Citi's high cost of service and in and out banking style. New Haven County and Hartford County in some areas require finesse and that personal touch. With Citi's strip mall style with no drive-thru's and so much staff at times its sickening, it isn't hard to believe that people would be turned off by the big bad bank. With a CEO that was ousted and a new CEO that does not have the background to fix this dire mess, why would any faith be placed in Citi at this time? Expansion plans have already been halted and rumors of selling off locations are in the mix. Is that a good idea? Yes of course it is. Chase did the same thing back in the early ninety’s, pulled out of CT regrouped and are now coming back in full force with a better feel for the area. Opening locations in areas that would need their high-end services, that is intelligent planning. In order for Citi to get out of this mess they need to cut back and cut back hard. Close locations, selloff branches, and regroup. Do more market research and provide more services that will appeal to blue collar companies. Free Business Checking and Free Personal Checking is a hot button with every consumer. No balance requirements and so forth, that’s what people are looking for. In addition to that you need to have people that are educated on the community in the right positions in order to properly grow the bank. People in management have to be willing to work with their people. Salaries cannot be so grossly inflated that, the managers don’t care since they will continue to get their big checks. Performance must be a direct influence on the pay scale. Also Citi, even though it is one of the largest full service financial institutions in the world, must focus on their U.S. locations and get money from reorganization rather than taking hand-outs from overseas powers. That is just another thing that shows weakness for this company. When U.S. investors don’t want to spend money to help a U.S. company that is saying something. Citi has a long road ahead of them and until they meet the needs of your everyday worker, or focus on a grass roots campaign to build up funds, there will be no light at the end of the tunnel.