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Will Citi hit $15?

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Bloomberg News reports that Citigroup Inc. (NYSE: C) may need more capital on top of the $7.5 billion it's already gotten from Abu Dhabi. And this announcement has caused Citi stock to fall to a nine-year low of $21.

A few months ago, I posted that Citi would keep dropping and that it might be a buy at $15. It's much closer to that $15 target than it was in December. But in my view, the uncertainty associated with how much more of the structured securities Citi will write off remains very high.

I think that Citi's future depends on how lenient the auditors are. If those auditors force Citi to mark all of its illiquid securities to their current market value, then Citi could run perilously low on capital. According to its 2007 10K, Citi had $133 billion of these illiquid Level 3 assets in December 2007. If auditors deem those worthless, Citi will need to match the write-offs with that much capital.

I'm not sure where Citi will get that much money. So if Citi does hit $15, I may need to set my target price even lower.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares.

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Last updated: November 26, 2009: 05:26 AM

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