November 21, 2008 – 1:00 pm


Like a hard core criminal receiving another guilty verdict, Citi has remained indifferent until now. Finally, the passing of a death sentence is revealing cracks in the criminal’s confidence.

Last night, Citi floated several trial balloons into the press:

  • It might sell the company
  • It might sell pieces of the company
  • It won’t do either of these things
  • The board will have an emergency meeting about the stock price today

The WSJ got the leak about Citi possibly selling pieces of the company or the whole thing. The Times got the leak that this wasn’t true. (Citi has a pet project going to discredit the WSJ after the paper said the firm was considering dumping Chairman Win Bisschof, which Citi violently denied. Perhaps the simultaneous leaked info and denials were designed to do this). Both papers got the story about the emergency board meeting today.

The purpose of the “might sell the company” leak, obviously, is to create hope for a takeover premium, which could briefly stop the stock plunge (the stock is up in pre-market). The purpose of the board meeting, meanwhile, is to decide what the company can actually do to stop the stock price from plunging.

But as Citi tries to stop the bleeding, the bank may actually be sealing its own fate. A takeover is almost certainly in the offing as Citigroup will never survive in its current form.

The government won’t let Citi collapse. They’ll force a sale to another bank, like Chase, B of A, Wells Fargo, or perhaps a stronger, foreign rival.

Or as with Wells Fargo and Wachovia, Citi will go to a better-connected rival. Nonetheless, the general economy will see no benefits from any such deal.

But the problem is that we’re just building a bigger time bomb. All of the above banks have very high leverage ratios. Fundamentally, they’re not in a significantly better position to withstand the crisis than Citi. The government will, perhaps, try to roll up all private banking assets into one super bank, which will receive unconditional government support. And yet, the potential failure of the super bank could blow up even the government’s balance sheet.

Yup, it sounds like something that goes BOOM right in the taxpayer’s face. Meanwhile, the bank goes right on buying time and selling lies.

Citigroup Inc., which fell 26 percent in New York trading today, is seeking to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter. The Wall Street Journal said Citigroup is considering a sale of the company.

The New York-based bank has discussed with the Securities and Exchange Commission and lawmakers its proposal to reinstitute the ban on bets that stock prices will fall, said the person, who declined to be identified because the discussions weren’t public.

Really?

Citigroup is blaming shorts when the short interest is under 3%. That’s ridiculous. If Citigroup does not understand this, it is a sign of incompetence. If Citigroup does understand how ridiculous their claim looks (and is), that is additional support for the desperation thesis.

Note the dividend. Citigroup is paying a dividend when it is clearly in need of capital . Is that a sign of arrogance or incompetence? That Citigroup is in this mess in the first place is clearly sign of incompetence somewhere, at some point in time. Current management will attempt to place that blame on Chuck Price, but the culture of greed, arrogance, and excessive risk taking, permeated the entire financial industry.

Well, it looks like they’re caught in another lie. This could be as dangerous as the lie that said Citi has no credit risk and therefore is a viable company which must simply clear some hurdles.

Senior executives say the company is financially strong and has ample financing options. Moreover, there are few buyers who would be willing to pay a price that Citigroup would want for its most valuable assets.

Where? The bank has losses greater than most national debts and has seen its share price crater to the low single digits. The bank has over a trillion dollars in Dark Assets as well as a sundry of off balance sheet wreckage. These buyers are as dark as the bank’s assets.

Senior executives feel that Mr. Pandit has followed through on plans to aggressively shrink the company and control costs. The bank has sold tens of billions of dollars’ worth of risky assets, improved its capital position and announced plans to eliminate 52,000 jobs by next June. “We are entering 2009 in a strong position, much stronger than we entered in 2008,” Mr. Pandit said in a speech to employees this week. “We will be a long-term winner in this industry.”

I feel compelled to inform senior management that Mr. Pandit is solving the wrong problem. While I am at it, I should also inform Mr. Pandit that he is straining credibility he does not have. The problem to be solved is how to generate revenue. If the bank were stronger in 2009 than it was in 2008, then shares would not be trading in the low single digits.

Still the lackeys say:

“The earnings power is there,” said Charles Peabody, a financial services analyst at Portales Partners. “It’s a question of getting through the credit issues.”

Well, Mr. Charles Peabody, may I ask where the bank has earnings potential? You are refuted by your own 10-Q statement.

As the environment for consumer credit continues to deteriorate, the Company has taken many actions to manage risks such as tightening underwriting criteria and reducing credit lines. However, credit card losses may continue to rise well into 2009, and it is possible that the Company’s loss rates may exceed their historical peaks.

Credit card losses, home mortgages, student loans, commercial real estate debt, and every other type of borrowing are all likely to deteriorate further as the depression sets in.

Citi also already played the game of cannibalizing your acquisition, but the fun came to a jarring halt when Wells Fargo outmaneuvered Citi for Wachovia. Now Citi is devouring itself, cutting 52,000 heads before Christmas and lying about solvency in  with no respect for investors who are pumping billions into a black hole.

Within the bank’s Manhattan offices, television screens have stopped displaying the company’s stock price. Traders have begun making jokes comparing Citigroup to the Titanic.

Just like the Titanic, there’s is nothing anyone could do but get away and watch it sink. Citigroup made it’s deal with the devil in the days of Chucky, and left the pieces to be picked up by others.

From July 10, 2007

Chuck Prince Citigroup CEO: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing“.

I leave it to you to decide whether or not this is the “last dance”.

It’s tough calling a top but I am going to try. I suggest the current trend is exhausted. My last “top call” was specially in regards to housing in the summer of 2005. Can lightning strike twice?

Notice how Chucky got his and got out, swam away, leaving the rest of us to sink or swim from the undertow of scuttled wreckage. It was no accident. If fact Citigroups Get Yous and Get Out, leaving everyone else to bail model, is a simple synopsis of the entire credit crisis.

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