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Great news for Citigroup (NYSE: C) CEO Vikram Pandit! After overseeing a 96% drop in Citi's stock price, Pandit will get to keep his job as the U.S. converts its $45 billion investment in Citi preferred stock into common. There's just a little problem for the common shareholders -- the U.S. is shoving them aside. And that's going to cost people who invested before today a little more of their money -- 43% more to be specific.
And why not? The conversion will reduce the stake that existing shareholders hold in Citi to 26% -- giving new investors the remaining 38%. But the conversion is absolutely necessary because Citi's ratio of tangible common equity to assets is now 1.5% and 2% is the minimum level required to avoid the FDIC labeling it "critically under- capitalized." The conversion has the advantage of not requiring any additional taxpayer money.
And there are probably fewer Citi common shareholders -- which include Saudi Arabia's Prince Alwaleed bin Talal, the bank's largest individual shareholder, and mutual funds as Growth Fund of America and the Dodge & Cox Stock Fund -- than there are American taxpayers, so let them eat cake!
Meanwhile, Pandit's track record is worth reviewing. Since taking over as CEO on December 11, 2007, Citi's stock has dropped 96% from $33.23 to $1.41, destroying $174 billion in stock market capitalization while Citi posted a $27.7 billion net loss -- which includes a fresh $9.6 billion charge tied to the drop in value of its consumer banking franchise in North America, Latin America and Europe from the global economic slowdown.
In the bizarro world where bad is good, that's an outstanding performance. Just two questions: Why is the U.S. betting Pandit is the right person to fix Citi? And is there truly no way to let Citi fail in an orderly manner without pumping more money into this zombie bank?
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns Citi shares.
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Reader Comments (Page 1 of 1)
2-27-2009 @ 9:10AM
Beltway Greg said...
"The horror, the horror." And of course Pandit stays at the helm, would you have replaced the captain of the Titanic after it hit the iceberg? Really, they should replace "30 Rock" with "Tales From the Citi Boardroom"
and replace Pandit with Alec Baldwin.
2-27-2009 @ 9:59AM
ae86takumi said...
I guess it's time to let go, and for me to move my savings to another bank. I am sad that Citi has come to this.
2-27-2009 @ 10:22AM
Mike O said...
@BeltwayGreg
While Pandit has done zilch to instill confidence, let us not forget that he took over for Charles Price. Prince was the man that steered the Titanic at the iceberg. It just happened to hit the iceberg when Pandit was at the helm.
Pandit is taking fire while Price enjoys his multi-million dollar golden parachute.
2-27-2009 @ 10:30AM
imslowlearnr said...
us government owns about 36% of citigroup as of today!!!
since they converted preferred to common and common stock is very high now what will prevent citigroup from doing a reverse split to bring the amount of stock down and the price back up into the teens???
thx
2-27-2009 @ 10:44AM
larry said...
if you own citi you best get out---think of the post office, am track, etc--the gov did a great job running those companies
2-27-2009 @ 12:37PM
Beltway Greg said...
Mike O,
True. But.....can't have a great deal of faith in a guy who sells his hedge fund Old Lane a.k.a. Old Lame to Citi and then they have to unwind it. "Unwind" is a euphemism for it was such a piece of garbage that they cried each time they pealed back each layer. True, the Citi mess with the off the books SIVs from hell was constructed long before his arrival but doesn't the man know anything about risk? Buy some puts dude. He displayed the same type of OPM=other people's money, attitude that is endemic to the street. On the other hand Citi might just be a buy for the ages. Couldn't resist 5000@1.61. I'll sell if it goes down to $1.00. Which it very well might have by the time I'm finished typing this post.
2-27-2009 @ 1:26PM
E.M. said...
Does this mean its time to buy Citi stock? Is Citi here to stay with the Gov't giving it support?
2-27-2009 @ 3:45PM
JCH said...
Interesting question, E.M.
They have not added new money, so with this move I do not think the government is guaranteeing that C will not be allowed to fail.
2-27-2009 @ 7:00PM
Allen said...
Vikram Pandit (rhymes with bandit!) is one of the biggest crooks on Wall Street. The new bailout is a colossal waste of tax dollars - Pandit's thievery makes Madoff look like an amateur. Mr. Pandit and the top management at CitiBank should be drawn and quartered.