The weekend is often the time when boards and the government decide the fates of companies and CEOs. It gives everyone involved at least two days, perhaps more, to weigh options and make decisions without the fury of stock market trading. A board of directors can start work on Friday at 4 PM and weigh options until 8 PM Sunday, when Asia opens, or 8 AM Monday if overseas trading is not an issue.
No one with any sense would believe that the board of Citigroup (NYSE: C), the FDIC, the Fed, and the Treasury are not working through this weekend, again. Most of the government people are so exhausted that those who leave with the current administration will be happy to have the rest.
A lot of options have been thrown around. But, the fate of Citi comes down to two things. At this point, the bank is believed to be in such bad shape that putting in a new CEO, even Jack Welch, would make no difference. Chapter 11 would wipe out too many firms that have non-insured deposits at Citi, too many companies that have loans with a bank that could be called, and too many common, preferred, and bond holders in the financial firm would lose everything.
That leaves the government taking over Citi the way it did AIG (NYSE: AIG) or forcing a sale as it did with WaMu or Wachovia (NYSE: WB).
Monday morning cold be quite a drama.
Douglas A. McIntyre is an editor at 247wallst.com.
Over the past few weeks, as the full dimensions of the economic meltdown have come into focus, most analysts have concluded that the financial crisis is the child of numerous parents, including predatory lenders, deregulating legislators, and excessively optimistic borrowers. Even so, the vast majority of the responsibility has managed to attach itself to the financial industry.
While taking the blame for tanking the economy, establishing Republican socialism, and possibly destroying Western Civilization, Wall Street has had its own problems. As the major players in the financial industry have crashed and burned or been eaten up by other, lesser players, the streets have been filled with the saddest form of performance art. Once arrogant masters who strode the universe on the southern end of Manhattan have become masters of the cardboard box, carrying their personals home to overpriced condos that were purchased at the height of a real-estate boom. The dive in the housing market, which has already hurt so much of the country, has only threatened New York; right now, fingers are crossed from TriBeCa to Harlem.
In the midst of this, Doubledown Media held its annual Wall Street Boxing Charity Championship in New York's Hammerstein ballroom. Admission prices ranged from $125 for general seating to $10,000 for a ringside table, and the event raised money for two charities: a youth village in Rwanda and Tuesday's Children, an organization that serves the families of 9/11 victims. The fight card featured professionals from some of Wall Street's biggest names; for anybody who is particularly interested, the winners included a guy from Deutsche Bank, a guy from Citi, and a guy from the NYMEX. The guy from Morgan Stanley lost in a decision.
Minyanville contributor Sean Udall dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.
We're gonna have French Toast for breakfast, French Fries for lunch and French Poodles for dinner in honor of our most recent socialist step. This is a historic juncture in the history of the world, as we edge through interesting times.
I spoke about this on CNBC in 2003 -- yes, I had more hair and less chin -- and felt like I was screaming about a monster nobody yet saw. Now granted, I was five years early and there were a LOT of opportunities between then and now but "socialism," "stagflation" and the perils of Fannie Mae(NYSE: FNM) were officially flagged.
Why do I highlight this? Simple -- the issues existed five years ago and have cumulatively built since, percolating under the system, growing in magnitude, magnifying in consequence. That's why there isn't a single, simple solution.
An analyst who follows Citigroup (NYSE: C) believes that the financial services company will sell it Primerica division. The operation provides customer life insurance and investment products including mutual funds.
According to Reuters, Ladenburg Thalmann analyst Richard Bove said, "Primerica does not fit into Citigroup Chief Executive Vikram Pandit's goals of making the bank an international company across business lines." Bove thinks that Primerica could bring in over $7 billion.
Pushing Primerica out the door does not address Citi's core problems. Pandit has said he will cut costs across the company by 20%. If selling off revenue reduces those costs, it hardly helps the bank's margins. It's really not expense reduction at all.
At the center of Citi's troubles are its mortgage-related securities portfolios, LBO debt, credit card business, and slowing revenue into its investment banking operation. There has been no clear sign that Pandit plans to take tremendous costs out of these operations that are critical to the bank's recovery.
Fixing Citi does not involve selling a life insurance company.
Douglas A. McIntyre is an editor at 247wallst.com.
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.Minyanville.com.
That Citigroup(NYSE:C) is closing its hedge fund is an embarrassment. I worked for Vikram Pandit at Mother Morgan (NYSE:MS) and he's a smart guy, evidenced by the fact that he sold his hedge fund to Citigroup for $800 million and the company dumped it 11 months later.
Another black mark, LehmanBrothers(NYSE:LEH) CFO Erin Callan was getting rave reviews for her poise as recently as yesterday. This morning she was tossed into the volcano. It just goes to show you that, on Wall Street, you're only as good as your last trade.
Finally, my brother suggested that the Lehman Brothers news is good for Goldman Sachs(NYSE:GS), which he knows I have a position in. At first I thought he was messing with me, as he does, but then he explained: "The Lehman business has to go somewhere." Given that I'm more concerned about the risk of contagion, I hadn't really thought about it like that. And while I'm happy to sell strength, I wanted to share that fare.
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
Bloomberg News reports that Citigroup Inc. (NYSE: C) lost $5.11 billion in the first quarter. This was worse than analysts had expected and was its second straight quarterly loss on at least $15 billion of writedowns and increased loan losses as customers fell behind on home, car and credit-card payments. Specifically, Citigroup's loss of $1.02 per share is the opposite of its profit of $5 billion, or $1.01 per share, in the first three months of 2007. Analysts were expecting a loss of 95 cents per share.
But it looks like Citi is doing something about the problem. Bloomberg News reports that Citi plans to cut costs by as much as 20%. It cites a Financial Times story that quoted CEO Vikram Pandit as saying: "It is clearly feasible for Citigroup to take 10, 15, 20 percent off its cost base, especially in information technology and operations." The cuts would include job losses among Citi's 370,000 employees.
And although its revenue plunged 48% to $13.2 billion, Citi beat analysts' expectations of $11.1 billion. Investors seem to be cheering the news about the cost cuts and the lower than expected drop in revenues. Citi is up 8.8% in pre-market.
Citigroup (NYSE:C) was planning to open 100 branches a year for the next several years. Now, it is reversing course and will close some of its newer branches. It needs to save money and finds that, in some regions, it cannot compete with the locals. According toThe Wall Street Journal, "Citigroup will focus on several large U.S. metropolitan areas where its market share of deposits is strong or growing, including Boston, Miami, New York City and San Francisco."
If a Citi customer happens to be in one of those metro areas, things may be fine. If a client of the bank is in one of the areas where the bank is "downsizing" it could be a problem.
The decision is an indication that Citi may even be willing to let some customers go to other banks if it cannot support the infrastructure to serve them. It is a sharp reversal of the visions of Sandy Weill, Citi's former brains and CEO. He wanted Citi to be central to the lives of consumer and retailer customers all over the world and to be the banker to every business from Bombay to Boston.
But, Sandy is gone now, and so is the vision.
Douglas A. McIntyre is an editor at 247wallst.com.
Today's announcement that Citigroup (NYSE: C) will take $49 billion worth of Structured Investment Vehicles (SIVs) onto its balance sheet suggests to me that its new CEO is following a path I wrote about earlier this week -- the first step of which is to take a big bath write-down fast. I think Citi stock will fall further before hitting bottom -- say $15.
Why is Pandit doing this? First, investors give a new CEO a chance to put all his predecessor's mistakes in the past through a write-down -- which generally includes closing businesses and firing staff. Second, Pandit probably realized that the alternative -- a fire sale of securitized assets (the average net asset values of SIVs tumbled to 55% from 71% a month ago and 102% in June) -- would be the lesser of two evils.
Nevertheless -- Pandit's move came with pain attached. Bloomberg News reports that two hours after Citi's announcement, Moody's Corp. (NYSE: MCO) lowered its credit ratings to Aa3, the fourth-highest level, from Aa2, saying "capital ratios will remain low." Citi's capital ratio is likely to tumble far below its target -- causing it to take further capital preservation moves. Specifically, its Tier I capital ratio is likely to hit 6.8% by the end of this year from 7.32% on September 30 -- far short of its 7.5% target.
Expect more unpleasantness -- like a cash dividend cut -- as Citi stock continues to tumble. But I think if it hits $15, it may be worth considering an investment.
Several sources, lead by the Wall Street Journal (subscription required), are reporting that Vikram Pandit, the head of Citigroup's (NYSE: C) investment bank, is likely to be made the new head of the firm early next week. There have been rumors that several outsiders have turned their backs on the job. That would not be surprising. No one is certain whether there is another shoe to drop if and when Citi takes more write-offs to its huge portfolio of mortgage-backed financial instruments.
But, if not Mr. Pandit, then who? He has been at the bank and knows its structure. It might take an outsider several months to learn about all of the pieces of the big bank. Citi does not have the luxury of schooling a new chief.
Citi's board will certainly keep in daily touch with the bank's progress. There may be only one CEO, but he will have a number of coaches. The board cannot afford to be seen as the group that let the company fall apart on its watch.
The other reason for appointing Pandit is that the truth about a company the size of Citi is that the CEO does not run it. He may set policy, but there is no practical way for him to make all of the critical decisions. Charles Prince learned that lesson the hard way when some of his key aides made bad calls on risk management.
Mr. Pandit? Yes. The sooner, the better.
Douglas A. McIntyre is an editor at 247wallst.com.
Savient Pharmaceuticals, Inc. (NASDAQ: SVNT), surged yesterday on analyst comments regarding their promising new treatment for Gout. Savient is a biopharmaceutical company. It engages in the development, manufacture, and marketing of pharmaceutical products that target unmet medical needs.
Savient makes Oxandrin, which treats involuntary weight loss caused by trauma, surgery, or diseases such as HIV. The company reported a 3rd quarter loss due to increased generic competition for the drug. This is just another in a long line of Pharmaceutical companies to lose market share to the generics. Nonetheless, Citi Investment Research analyst Andrew Swanson started coverage of the drug maker with a "Buy/Speculative" rating and $21 price target. Which is 50% higher than yesterday's closing price.
The company's biggest growth prospect is Puricase which treats gout, a painful inflammation of the joints caused by having too much uric acid built up in the blood. Swanson notes that gout is a large and untapped market, as three million patients await their first new therapy in more than 30 years. At $15,000 per year, even making modest market share assumptions, Swanson's peak sales forecast for Puricase is $600 million.
With such a promising drug in the pipeline this looks like an interesting play. Savient's entire market-cap is $767 million, so this could be a huge opportunity for investors. But as the case with all potential blockbuster drug in trial, if the trial fails, look out below! In a note to clients, Swanson estimates the chance of positive data at 80%, but warned that if the trial fails, Savient shares could fall to as little as $3. Yikes.
Clearly this isn't for the faint of heart, but if you can stomach the potential downside, the upside potential will be well worth the risk.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 11/29/07.
The New York Times has written a heartfelt love letter to Maria Bartiromo of General Electric (NYSE: GE)'s CNBC. The most interesting part to me is that Maria feels that Chuck Prince was using her "relationship" with former Citigroup (NYSE: C) executive Todd Thomson -- about which I posted earlier this year -- to divert attention from his mismanagement of the bank. With Prince out, Maria's riding high. But Todd must be kicking himself -- if he hadn't gotten into the Maria mess, he might be in a position to take over from Prince.
Since I have had the privilege of being interviewed by Maria Bartiromo -- here's a link from August -- and was called a couple of times last week to discuss the situation at Merrill Lynch (NYSE: MER), her status at CNBC is of more than academic interest to me. I have never met her in person, but her interviews have always been sharp and professional.
But the Todd Thomson incident raised questions which the article did not completely squelch. As a reminder, in January unidentified executives at Citigroup, which is both a CNBC advertiser and a frequent subject of its coverage, told several publications that among the reasons Thomson was fired was his decision to invite Maria to speak to a group of Citigroup clients in Asia and to fly her to that event in the company jet.
TheStreet.com's Jim Cramer says getting rid of the CEO was a good first step, but more must be done to turn things around.
The temptation is to say that getting rid of Chuck Prince is too little, too late for this once-great bank. But that's just not true. What needs to be done is a quick dismantling of everything that Prince has done -- his worldwide acquisition of assets, including everything in Japan, as well as the fast shedding of these hedge funds.
More important, whoever runs the place has to sell things that have simply accumulated over the years. Of course, some of this will have to resemble a fire sale -- think like what Dick Parsons, a Citi (NYSE: C) (Cramer's Take) board member, had to do at Time Warner (NYSE: TWX) (Cramer's Take) to save that.
TheStreet.com's Jim Cramer explains why this poor earnings report is such a crushing blow.
Yep, Merrill Lynch (NYSE: MER) (Cramer's Take) messed up, for certain. We had no idea how bad things were. They just gave us no signal. Devastating.
Citigroup (NYSE: C) (Cramer's Take)? We all knew that Prince was a pathetic risk manager. Check that, Bob Rubin and the Crown Prince don't think so, but the rest of the world does. So the fact that Citigroup needs to talk to Bob Steele at Treasury to save itself isn't all that shocking.
Wachovia (NYSE: WB) (Cramer's Take)? I thought it was more conservative than this. Then again, it bought Golden West at the top and even that great lender succumbs in this horrid environment.
But the one that really hurts, the big surprise, is Bank of America (NYSE: BAC) (Cramer's Take). To me this bank had been doing everything right, tight standards, good national growth rollout, fantastic research, good solid banking.
Suddenly, I feel that everything's on the table after that quarter. It just really blew it in lending and trading and investment banking, in mortgages, you name it.
Fortunately, of these four, Band of America could come back the fastest. Ken Lewis is no-nonsense. Anyone who disappointed will be forced out. He will review and slice and crush, as we see already. But it is the one bank that I know I had been telling people had the real growth you want out of a bank. The one that would not be a value trap. And given the fact that there were no more banks it could buy, I figured now would be when it would just return dollar after dollar to shareholders in buybacks and dividends.
I think it still will.
But after this quarter, sadly, there will be fewer dollars to give back and I just don't know how they are going to grow as fast as everyone else any more.
To me it looks like, right now, we may have lost the best bank ATM out there.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Citigroup.
The weekend is often the time when boards and the government decide the fates of companies and CEOs. It gives everyone involved at least two days, perhaps more, to weigh options and make decisions without the fury of stock market trading. A board of directors can start work on Friday at 4 PM and weigh options until 8 PM Sunday, when Asia opens, or 8 AM Monday if overseas trading is not an issue.
Over the past few weeks, as the full dimensions of the economic meltdown have come into focus, most analysts have concluded that the financial crisis is the child of numerous parents, including predatory lenders, deregulating legislators, and excessively optimistic borrowers. Even so, the vast majority of the responsibility has managed to attach itself to the financial industry. 
Minyanville contributor Sean Udall dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit 
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit 
reports that 
TheStreet.com's Jim Cramer says getting rid of the CEO was a good first step, but more must be done to turn things around.
Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
Bet on T&A with J&J (JNJ)
