There have been growing concerns that the financial condition of Citigroup (NYSE: C) is getting worse and not better since the government bailed the bank out two months ago. Now, the question is coming up again regarding what will happen if Citi needs a lot more capital.
According to Reuters, "Veteran banking analyst Richard Bove widened his fourth-quarter loss estimate for Citigroup , saying the bank may take sizable write-downs in its capital-markets operations." That does not mention the huge problems that the bank may have with its consumer credit portfolios. Default rates on credit cards have been spiking up for several months and should go up further as unemployment rises.
What happens if Citi has to raise several billion more dollars? The government may not be as generous as it was the last time. It may want preferred stock at a better price and warrant coverage on the stock which could cause dilution for current shareholders, depending on how it is structured. If the government is smart it will require that some private equity needs to be put into the bank along with a federal investment.
All of that means that Citi's stock price is almost certainly moving down. The firm's shares trade at $7.83 and it has a market cap of $42 billion. If the company needs to bring in $10 billion it may have to offer stock at a below market price. That could cut the share price to $5 or perhaps lower.
No one in his right mind wants Citi shares now.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
12-18-2008 @ 10:26AM
BHarrison said...
Well, what about Paulson's announcement on TUESDAY that "the worst is over" . . .?
The man has TOTALLY LOST ANY CREDIBILITY that he may have thought that he had.
And the bad news just keeps flowing everyday. People decry "others making comments that may negatively impact the spending by others to stimulate the economy"; yet the "bad financial news" keeps flowing out of the pipeline in a steady stream . . . . we can only wonder how much more is in the pipeline, and how long it will continue to flow.
Even Obama has made statements to prepare the American people for the fact that things are "going to get a lot worse before they get better . . "
To solve a problem, one has to fully define the problems FIRST. Our "national problems are still being defined". However the government has not provided the FULL DISCLOSURE and TRANSPARENCY that was promised.
All that the government has done so far has been to try to "buy time" for the FIs and the corporations to try to better their situations at the disadvantage to the American people.
Only by restoring INTEGRITY to the markets and the FIs and corporations by implementing sound and reasonable regulations requirng sound business/accounting practices will any "faith and confidence" be restored to the markets and people's confidence to spend money.
So far, Congress has NOT done ANY of that, have they? The banks are either holding onto the money to prop up their balance sheets OR they are using the Bailout monies to purchase other failing banks or financial intitutions.
The "TRICKLE DOWN PROGRAMS" aresimply and DEFINITELY NOT WORKING, are they? That is a "theory" that only enriches the wealthy . . . it is like giving all of the food to the wealthy and telling the people that we will be able to feed our families off of their table scraps". It didn't work in the past, and it won't work now or in the future.
The key operative words are: "INTEGRITY", "CREDIBILITY", "FULL DISCLOSURE", TRANSPARENCY" . . . and yesterday, the CEO of GE announced that GE will quit providing their quarterly financial reports to stockholders. What a slap in the face that is for all GE stock holders. That CEO needs to be REMOVED ASAP.
12-18-2008 @ 7:14PM
C T Christie said...
If when we look at the gloom in financials we look hard enough with a optimistic lens, I am sure one can find some good buying opportunities.
When analyzing a company, any company, a number overlooked by most everyone is the replacement cost of the company's infrastructure. Think about it, someday when the economy turns all this will be valuable in getting a head-start toward the next cycle. I'm looking at companies that are currently selling for as little as five cents on the dollar with tangible assets worth at least (conservatively) 10 times that amount.
A good example is ( C ) how much would it cost to replace all the property, buildings, personnel(trained) equipment and connections for doing business ??
1-28-2009 @ 10:57PM
msbodley said...
One way that would shock and awe the financial industry is if all that bailout money wen to the AMERICAN PEOPLE to put back in to the economy. That would flip the script on corporate america and make them pay attention like never before. Right now, the money is being dispensed to THEM and we have to wait for it to trickle down to us.
BUT, if the government were to disperse that money to every American household, that money wouldn't trickle into the economy, it would flood the economy and have the banks and businesses clamoring for US to spend it with them and here's how:
1) We would rush to pay off all of our bills, so therefore, the credit card companies have an influx of money to issue NEW credit and invest. Now with a huge segment of the American population free from credit card debt, the credit card companies will have to provide some incentive to keep us because there are so many credit card banks and companies to choose from.
2) Some Americans being debt free would catch up on their mortgage, therefore providing an influx of the money into banks and financial institutions who can now refinance and help struggling homeowners who are facing foreclosure, as well as offer NEW LOANS to homebuyers to take some of the foreclosures off their books and put them back on the market where they will then generate taxes again, to the delight of the city.
3) Some Americans being free from credit card debt and caught up on their mortgage may need a new car, therefore car dealers will probably see more business and sales will pick up quite a bit.
4) Airlines will see more people starting to fly again since people will have more passive income.
5) Retailers will benefit because people are likely to shop a bit more now that their bills are paid.
In general the economy will thrive a lot sooner if this money were put into the hands of the AMERICAN PEOPLE (after all it IS our money to begin with) and NOT Corporate America. ANY THOUGHTS ON MY IDEA??