News that financial services giant Citigroup (NYSE: C) is selling shares of common stock to raise capital is disturbing. According to a report in Bloomberg: "The company announced plans to sell $3 billion of stock to increase capital depleted by writedowns on subprime-related mortgages and bonds."
To dilute investors even more is just plain "Chutzpah." Shareholders over the last year or so have already lost more than 50% on their City shares; there has got to be a better way for the company to increase capital. Instead of diluting investors why not try and unlock some value for shareholders? It's not like the company has no assets. It could spin off the credit cards division, separate domestic and global consumer banking, spin off the capital markets division, and so on. It could generate a lot more than a measly $3 billion, and actually make shareholders happy!
Commenting on the move, as reported by Bloomberg, "Super Analyst" Meredith Whitney, who basically has been correct each step of the way as the banking crisis has worsened, said, "The fact that the company raised such a small amount of capital at this time confounds us. We believe Citi needs to raise an additional $10-$15 billion or sell several hundreds of billions worth of assets in order to truly shore up its capital position.''
It's time for Citi to be broken up, so that investors can finally reap some rewards.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/30/08
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Reader Comments (Page 1 of 1)
4-30-2008 @ 3:37PM
NewsVisual said...
In an effort to rebuild its capital resources and to restore its balance sheets, Citigroup Inc announced on Wednesday that it will make a $4.5 billion public offering of common stock. Given the billions of dollars that the bank lost as a result of the subprime mortgage, it’s not surprising that the bank should be replenishing its coffers. The bank also recently offered an issuance of $6 billion of preferred stock. "We were pleased to increase the offering size to $4.5 billion in response to strong demand from a broad base of investors," said Citi CFO Gary Crittenden. "This optimizes our capital structure and further strengthens our balance sheet," he added. The Directors must now develop a strategic plan that will reverse the bank’s downward decline and that will make certain that the investors’ money results in future earnings for the bank.
5-03-2008 @ 1:31PM
Gerard Johnson said...
We just had a shareholders meeting where voting
on additional shares is customery. Instead they wait until after then blindside us with another increase. The new shares were sold at below market to the new holders, yet, as a long-term shareholder I was not able to buy at bargain prices.
What did happen was that as news got out the shares plunged further, thus costing us more financial loss. This on top of gross mismanagement
that has destroyed the world's greatest bank.