Citigroup's options dwindle as shares fall under $4
Citigroup is considered the most vulnerable among the major US banks, failing to turn a profit in the past four quarters. Will Citi go for lay-offs in India?
By Agencies |
NEW YORK: Citigroup's options are dwindling along with its stock price as the credit landscape deteriorates and fears escalate about future loan losses at the company.
As the banking giant's shares slid below $4, analysts said Friday it may be forced to merge or sell some of its prized businesses.
Citigroup has already raised $75 billion in capital this year, including a $25 billion cash investment from the government - and none of it has been enough to muster confidence.
Raising more money on the open market is "pretty much off the table" with shares at $4, said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. And raising more cash from outside investors or the government would be "a Band-aid."
"You're going to have to see more sizable divestitures," Fitzpatrick said. "They're going to have to make changes here, and they don't have time on their side anymore."
The New York-based bank is scheduled to hold a board meeting Friday to discuss whether to sell all or part of itself, the Wall Street Journal reported.
Citigroup's shares tumbled below $4 a share to their lowest level in more than 15 years, continuing a sharp, week-long plunge that could not be stemmed by Saudi investor Prince Alwaleed bin Talal's decision Thursday to raise his stake in the company to 5 percent from less than 4 percent.
The shares have shed 60 percent of their value since last Friday.
An outright sale shouldn't be ruled out, but it appears unlikely, said Alois Pirker at Aite Group. Not only are there few potential buyers right now, but "firms prefer to cherry pick," he said. "If you don't have a well integrated shop, the benefit of taking over the whole versus pieces diminishes."
Pirker said sale opportunities include Citi's Global Transaction Services business and its brokerage, Smith Barney. Pandit has said in the past that these two businesses are important to Citigroup - but these two franchises are not core to retail banking and would be attractive to potential buyers, Pirker said, because they have performed well in the recent turbulent environment.
As the banking giant's shares slid below $4, analysts said Friday it may be forced to merge or sell some of its prized businesses.
Citigroup has already raised $75 billion in capital this year, including a $25 billion cash investment from the government - and none of it has been enough to muster confidence.
Raising more money on the open market is "pretty much off the table" with shares at $4, said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. And raising more cash from outside investors or the government would be "a Band-aid."
"You're going to have to see more sizable divestitures," Fitzpatrick said. "They're going to have to make changes here, and they don't have time on their side anymore."
The New York-based bank is scheduled to hold a board meeting Friday to discuss whether to sell all or part of itself, the Wall Street Journal reported.
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Citigroup's shares tumbled below $4 a share to their lowest level in more than 15 years, continuing a sharp, week-long plunge that could not be stemmed by Saudi investor Prince Alwaleed bin Talal's decision Thursday to raise his stake in the company to 5 percent from less than 4 percent.
The shares have shed 60 percent of their value since last Friday.
An outright sale shouldn't be ruled out, but it appears unlikely, said Alois Pirker at Aite Group. Not only are there few potential buyers right now, but "firms prefer to cherry pick," he said. "If you don't have a well integrated shop, the benefit of taking over the whole versus pieces diminishes."
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Pirker said sale opportunities include Citi's Global Transaction Services business and its brokerage, Smith Barney. Pandit has said in the past that these two businesses are important to Citigroup - but these two franchises are not core to retail banking and would be attractive to potential buyers, Pirker said, because they have performed well in the recent turbulent environment.
Selling off the businesses in a particular region is another option, Pirker said. Recently, Citigroup sold off its retail banking business in Germany - it could do the same with Japan, for example, he said.
Citigroup could also consider a merger rather than an outright sale.
"A merger is indeed a possibility at this point," Fitzpatrick said. He said there are a number of firms that would be eager to take over some of Citigroup's businesses - particularly a company like Goldman Sachs Group Inc., an investment bank that recently turned into a bank holding company and is now on the prowl for deposits.
Citigroup is considered the most vulnerable among the major US banks, failing to turn a profit in the past four quarters when rivals such as New York-based JPMorgan Chase & Co. and Charlotte's Bank of America Corp. managed to do so.
Concerns are growing that the deteriorating economy and still-turbulent markets will slam Citigroup with more write-downs in the coming quarters. What began as a subprime residential mortgage crisis has ballooned into a full-blown debt crisis, escalating defaults in everything from leveraged loans to credit card debt to commercial real estate loans.
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The bank has been rushing to get leaner and wind down its assets backed by risky debt. Monday, Citigroup said it will cut 53,000 jobs, on top of 22,000 cuts previously announced. On Wednesday, the bank said it is acquiring the remaining $17.4 billion in assets held by complex debt products known as structured investment vehicles that it previously ran off its balance sheet.A call that CEO Vikram Pandit and Chief Financial Officer Gary Crittenden held Friday morning with senior managers at the bank offered nothing new about a shift in strategy for the company.
People familiar with the call, who spoke anonymously because the comments during the call were not made public, said that Pandit's message was similar to that at his town hall meeting with employees on Monday - that Citigroup has adequate capital, and that he supports the universal bank model.
Still, the people said the call, which lasted about half an hour, did not rule any option out.
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"It's clear everything is on the table. That wasn't explicit, but I think it's clear," one person said.Download
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