Citigroup Inc. posts
Back in the summer of 2010 when the market was down, the gulf was full of spewing oil and investors were running away from bad news stocks shocked most notably by BP (BP
) oil spill, I decided to post a contrarian story
reminding readers that the fear was overblown and created a buying opportunity.
"My pal Warren" has said for years that we should buy on fear and sell on greed. The toxic stock portfolio was a result of this sentiment.
This is the fourth update to my ranting eight months ago that acquiring six of the most hated, and most highly traded stocks with constant negative headlines would outperform the overall market. The theory has born fruit as the toxic stocks are ahead and the difference is increasing over time.
Continue reading Chasing Value: Toxic Stock Update #4 -- BAC, BP, C, GE, GS, RIG
We are only one month into the new year and there have not been many dull moments. Games are going on in the Middle East and they are not the friendly kind. In Egypt a million plus protesters
are playing a game of chicken with the Mubarak government demanding he step down from his 32-year-old reign as perpetual president.
This is not radical Islam fundamentalists; it is even more fundamental. The people want to improve their daily lives in a meaningful way. Education, infrastructure, clean water and clean streets. Speaking of infrastructure and getting back to the less dramatic but still important great stock picks Telefonica (TEF
) and General Electric (GE
) were the big winners so far bouncing over 10% in January.
Continue reading Chasing Value: 2011 Picks Dust the S&P
I have already gone on record this year saying that financial companies and insurance stocks are going to continue to rebound. In my previous two posts Chasing Value: 2011 Stock Picks -- 5 of 11 and Chasing Value: 2011 Stock Picks -- 6, 7, 8, 9, I included several financial institutions. Today I add an insurance company.
The industry got whacked hard for many reasons. For one, it makes a significant amount of profit by investing its float, and like every other investor, the industry lost a pile of money in the financial crisis. It was embroiled more directly than some industries, as several insurers are affiliated with banks. Finally the housing crisis meant disruption to payment streams by homeowners who were delinquent on more than their mortgages.
Continue reading Chasing Value: 2011 Stock Picks -- 10 and 11
Could a stock that you made 1,100% on still have room to run? Yes, it is possible. In particular if it had a near death experience as a penny stock for a while.
That is the case with Newcastle Investments (NCT), the CMBS lender and real estate investment company that reached a recent high of $7.10 and has settled back down, most recently hovering between $6.70 to $7.00. It closed Thursday December 23 at $6.71.
Continue reading Chasing Value: 2011 Stock Picks -- Part 2
Last year, a U.S. District Court in Manhattan secretly froze $2 billion held in a Citigroup (C) account. The money was believed to have been held on behalf of Iran, through Luxembourg's Clearstream Banking S.A. In what the Wall Street Journal reports could be the largest seizure of Iranian assets abroad since the Islamic revolution of 1979, several parties are lining up to claim the cash. And, it looks like the battle is headed for trial.
The order to freeze the funds was executed 18 months ago by the U.S. District Court for the Southern District of New York and hasn't been made public. In issuing the legal order, the court used information from the U.S. Treasury Department. Though the money is frozen, the struggle is heating up.
Continue reading Global fight brewing over frozen funds from Iran
Bank of America (BAC) surprised the market on Wednesday by announcing that it would repay the $45 billion in TARP money it received over the next few days. This gives the company much more flexibility in compensating its employees, but it could leave the bank exposed to future economic shocks.
CEO Kenneth Lewis, who's expected to retire at the end of the month, said he wanted to take care of this before leaving the firm. This decision comes at a great time for the Treasury Department, which has been feeling the heat for committing taxpayer resources to a dicey problem without seeing much progress yet.
Continue reading BofA to repay TARP money, rest to follow?
Citigroup (NYSE: C) and American International Group (NYSE: AIG) have already taken about $496 billion in U.S. cash and guarantees to keep them from failing. This makes me wonder: Is there no way to allow them to simply fail without causing the entire global financial system to collapse? And if not, is there a limit to how much more taxpayer money we pour into them before we say "no more"? The answers: Maybe and Yes.
Citi looks to be a basket case after $345 billion in taxpayer bailouts. It has already gotten $45 billion in cash -- $25 billion of which was recently converted from preferred to common -- and $301 billion in guarantees of its toxic assets. The U.S. now owns 36% of the common stock of Citi -- which lost $27.7 billion in 2008 and has a market capitalization -- Citi common shares times price per share -- of $8.2 billion.
Continue reading After $496 billion, how much more can we bail out Citi and AIG?
Congress is sending a bill to President Obama's desk that limits banker pay. Specifically 11 pages in the 1,073-page $787 billion stimulus bill describe a provision that limits bonuses for executives at all financial institutions getting government money to a maximum of a third of their salary. And these are not cash bonuses -- instead they'll be paid in company stock that executives can't sell until the government investment has been repaid.
Citigroup (NYSE: C) CEO Vikram Pandit, volunteered to take a $1 salary until his company returns to profitability. Assuming Citi posts a loss in 2009, Pandit's maximum bonus for the year will be 33 cents -- which at today's price would amount to a tenth of a share of Citi stock.
Continue reading Will Citi CEO get a 33 cent bonus this year?
Last month, I posted on 2008's eight worst ideas. At the top of my list was deregulation. Robert Rubin, who spent a decade as a director of Citigroup (NYSE: C) and is now retiring, is partly responsible for one very important act of deregulation -- the repeal of Glass-Steagall which separated investment and commercial banking. (It was former Citi CEO Sandy Weill's 1998 merger of his Travelers with Citi that spurred Glass-Steagall's repeal in the 1999 passage of the Gramm-Leach-Bliley Act which allowed commercial and investment banks to own each other.)
And by bringing down that barrier -- established in the wake of the stock market manipulations of the 1920s enabled by commercial banks that made margin loans to trade stocks -- the U.S. helped usher in the current financial catastrophe. Now the government is gradually reimposing Glass-Steagall -- in effect, if not in law.
Rubin was well rewarded for his decade of "service" to Citi -- taking in $126 million and being paid as an employee while claiming to be a mere advisor. But for that measly sum, Rubin's reputation -- which was at its zenith following his tenure as Treasury Secretary in the 1990s -- is shredded. It probably didn't help that since he joined Citi's board in October 1999, its stock has fallen 82% -- destroying $164 billion in stock market value. Meanwhile, the empire that Weill ushered in -- based on the idea that people wanted to buy all their financial services from one provider -- is being dismantled.
Continue reading As Rubin departs Citi, deregulation gets a spike through its heart
Wonder what happened to the hard earned money you paid in taxes? I can't account for all of it but $540 billion that went to six financial institutions is being used, in part, to operate 27 corporate jets. I may be the only one who feels this way, but I don't think the survival of the global economy depends on using taxpayer money to pay for financial executives to fly on their own corporate jets.
Here are the six financial institutions with the amount of taxpayer money they received and the number of corporate jets they're still flying:
Continue reading Six banks with $540 billion in bailout money still flying 27 corporate jets
The FDIC took over three banks yesterday, bringing the total number of bank failures so far this year to 22. As I posted, the FDIC likes to close banks on Friday after hours so they can reopen as branches of the acquiring bank on the following Monday morning. But the U.S. better be working overtime this weekend because Citigroup (NYSE: C) is going to need a merger partner or a government rescue to keep it from becoming history's biggest bank failure.
Of the three banks that failed Friday, two were in California -- Downey Savings and Loan Association (with $12.8 billion in assets and deposits of $9.7 billion), based in Newport Beach, and PFF Bank & Trust of Pomona (with assets of $3.7 billion and $2.4 billion in deposits) -- and the third was in Georgia: The Community Bank, with $681 million in assets and $611.4 million in deposits in Loganville.
In each case, the FDIC arranged for a healthier bank to take over the deposits, branches, and some of the assets of the failed one. U.S. Bancorp (NYSE: USB) acquired the deposits of the two California banks that were brought down by Option ARM mortgages -- which allow a borrower to skip payments and add the amount to the loan principle -- and housing construction loans. Bank of Essex, of Tappahannock, Va., bought all the bank deposits and $84.4 million of The Community Bank's assets -- the FDIC took on the rest.
Continue reading Bank Failure Count: FDIC closes 22nd bank of 2008
The financial crisis is not over. If things were back to normal, banks would be lending to each other and to businesses and individuals. But measures of bank lending risk suggest fear is 12 times as high as it would be in normal times. The reason? Banks know more than you do about what's wrong. And they're not talking about it because they don't want you to withdraw your deposits and sell your stock. What they know is that on October 21st, some of the biggest players on Wall Street could be required to come up with $400 billion that some may not be able to pay.
Last month, the White House decided that we could afford to let Lehman Brothers file for bankruptcy. That proved to be an enormous mistake. It triggered a run on money market funds because one of the oldest such funds, Reserve Primary, broke the buck since it held Lehman Brothers paper. The U.S. responded with a $50 billion guarantee of money market funds. But the biggest consequence of that mistake is in the $54.6 trillion market for Credit Default Swaps (CDSs).
A CDS is like selling insurance on your car to hundreds of people who don't own it -- yet if your car goes up in flames each of those people collects the full value of your car. More specifically, CDSs are insurance against a bond or loan default. Why are CDSs so dangerous? Three reasons: a CDS seller does not need to put any capital aside to cover losses if the security defaults, the buyer doesn't need to own the asset it wants to protect, and there is no central place where information about all these CDS deals is collected and updated.
Continue reading Will Lehman bankruptcy drop a $400 billion shoe on October 21st?
Hank Paulson is keenly aware that his Goldman Sachs Group (NYSE: GS) and Treasury predecessor, Robert Rubin, helped save the market by encouraging the then-head of the New York Fed to force Wall Street leaders to team up to save Long-Term Capital Management's collapse from taking down the financial markets. Just as George W. Bush needed to recap Iraq, so now does Hank Paulson need to recap that famous meeting in lower Manhattan.
Bloomberg News reports that the meeting -- which took place yesterday afternoon -- involved a rogues gallery of Wall Street executives coupled with Paulson and New York Fed president Tim Geithner. The message these regulators delivered was reportedly a simple one: "You need to solve your own problems, and we're not going to provide any more capital." But Wall Street -- as represented by the likes of "Citigroup, Inc. (NYSE: C)'s Vikram Pandit, JPMorgan Chase (NYSE: JPM) 's Jamie Dimon, Morgan Stanley (NYSE: MS)'s John Mack, Goldman's Lloyd Blankfein, and Merrill Lynch & Co., Inc.'s (NYSE: MER) John Thain" -- are convinced that the Fed will blink when it comes to the 158 year old Lehman Brothers Holdings (NYSE: LEH).
Bank of America (NYSE: BAC) reportedly wants to put in a bid for Lehman contingent on getting government help -- such as the $29 billion JPMorgan got in its Bear Stearns acquisition and its nationalization of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). After these two precedents, Paulson now wants to reverse himself. He says Lehman is different because people have known it was in trouble for a long time and it can access the Fed's discount window. But I think this could just be a little show for the President who is worried about how this will look to history. He may not realize that he has already opened the Pandora's Box of moral hazard and can't shut it now.
Continue reading Will Lehman lose as Paulson and Wall Street play a game of chicken?
It has been five weeks since I posted Serious Money: Tempting fate with 10 financials
. The results of buying into the following pool of financial stocks at a time when the "hate 'em" factor was at a peak has been tremendous. The over all return has has been 26.3% with eight stocks up and two down.
For investors this might have been too speculative; for traders, they are probably grinning from ear to ear. For me -- we will see where we stand next year. As one of my colleagues reminded me, this is the real test, although I think there is reason for optimism.
The leader of the pack was MBIA Inc
), up 228%. In the absence of that gain the appreciation would have only been 3.5%. That beats all the indices but is not as dramatic.
- Citigroup Inc. (NYSE: C) -- $18.45 down 63% from its 52 week high of $49.90; closed yesterday at $19.11, UP 3.57%
- Lehman Br Holdings (NYSE: LEH) -- $16.88 down 75% from its 52 week high of $67.73; closed yesterday at $16.13, down 4.44%
- Merrill Lynch (NYSE: MER) -- $26.25 down 67% from its 52 week high of $79.72; closed yesterday at $27.75, UP 5.7%.
- MBIA Inc (NYSE: MBI) -- $4.92 down 93% from its 52 week high of $68.98; closed yesterday at $16.14, UP 228%.
- E*TRADE (NASDAQ: ETFC) -- $3.06 down 84% from its 52 week high of $19.39; closed yesterday at $3.25, UP 6.2.
- East West Bancorp (NASDAQ: EWBC) -- $12.46 down 67% from its 52 week high of $20.88; closed yesterday at $13.01, UP 4.4%.
- Gramercy Capital (NYSE: GKK) -- $6.72 down 77% from its 52 week high of $29.45; closed yesterday at $6.80, UP 1.2%.
- Newcastle Investment (NYSE: NCT) -- $5.88 down 72% from its 52 week high of $20.88; closed yesterday at $6.89, UP 17.18%.
- Wachovia Corp. (NYSE: WB) -- $15.70 down 70% from its 52 week high of $53.10; closed yesterday at $16.65, UP 6%.
- Washington Mutual (NYSE: WM) -- $4.43 down 89% from its 52 week high of $39.48; closed yesterday at $4.24, down 4.29%
In my original post I emphasized that you had to buy the pool for safety. During the last month, we have seen many stories about Lehman Brothers' demise or the collapse of a major bank like WaMu or Wachovia, and if that had happened the gains in MBIA would have made up for the total and complete collapse of any one of them. I have no reason to believe this is immanent. I do have reason to believe the opposite. During the last month I bought additional shares of WaMu, one of the two down stocks at $3.50 per share.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of MBI, NCT & WM.
CNNMoney reports that Morgan Stanley (NYSE: MS) is the latest bank to buy back its worthless Auction Rate Securities (ARS) from individual investors. With that buyback, Morgan Stanley follows in the wake of Citigroup, Inc. (NYSE: C), Merrill Lynch & Co., Inc. (NYSE: MER) and UBS AG (NYSE: UBS).
CNNMoney notes that Morgan Stanley said it would offer to repurchase all ARS "held by individuals, charities and small and medium-sized business with accounts of $10 million or less at the bank." Morgan Stanley will begin to start buying back $4.5 billion worth of ARS on September 30th and will "make its best effort to provide liquidity solutions" for institutional investors by the end of 2009. But New York attorney general Andrew Cuomo is not satisfied with Morgan Stanley's proposal.
Meanwhile, the list of big ARS issuers that have not settled grows shorter. Here are six holdouts (with their 2007 municipal ARS issuance in parentheses):
Continue reading Morgan Stanley latest to buy back Auction Rate Securities
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