Understanding Citigroup

On Friday, CNBC's David Faber addressed a simple, yet overlooked, trait of Citigroup (NYSE: C  ) . As shares continue to surge higher, Faber's observation is worth repeating here:

One of the key things investors in Citi need to understand, of course, is that when all of the exchange offers for the preferred into common are concluded ... it will have approximately 23 billion shares outstanding. Now, that is not fully accounted for right now. If you go on your system, or you look at Yahoo! Finance ... you won't see that share count because [the conversion hasn't] ultimately concluded ... but it will in a few weeks ...

You know how to do the math: 23 times $4.75 or so where the stock is, and you get a $109, $110 billion market value for Citigroup.

That's a market value that company had when things were going fairly well. Not necessarily when it was making $20 billion a year, but you get the point. Yes, there may be lots of earnings power yet to come at Citigroup. But as the company restructures, as it continues to shed jobs and units, it's very much unclear where the earnings power is going to be, and you can be sure that losses are still going to be taken.

As I showed a few months back, Citigroup's conversion of preferred to common equity -- much of which taxpayers own -- results in a 75% dilution to existing common shareholders. Once it's completed, shares outstanding go up about fourfold.

As Faber notes, this isn't yet accounted for on most finance sites. Yahoo! Finance shows that Citigroup has 5.5 billion shares outstanding, and a $26 billion market cap -- a fraction of the more realistic $110 billion. If you're bullish on the banking sector, $26 billion might look rather appealing. Four times that amount ... not so much.

For perspective, Citi's effective $110 billion market cap is just barely below that of Wells Fargo (NYSE: WFC  ) , a bank still making profits. Record profits, actually. It's also substantially above the market cap of Goldman Sachs (NYSE: GS  ) , a bank making so much money it had to tell its employees to avoid public attention.

Amazingly, Citi's $110 billion market cap is almost the same capitalization that JPMorgan Chase (NYSE: JPM  ) -- by far the strongest of the big banks -- commanded just six weeks ago. Think about that.

These are different companies with different balance sheets, so direct comparisons aren't entirely fair. But the similarities between what the market is apparently willing to pay for a bank making money hand over fist, versus one that's a bloody disaster, is telling. And it shows that Faber is probably on to something.

Consider two points:

  • Last quarter, Citi reported a $4.3 billion profit. But all of that was made up of a one-time gain related to selling most of one of its crown jewels, Smith Barney, to Morgan Stanley (NYSE: MS  ) . Without this one-time gain, the bank would have reported a quarterly loss of many, many billions of dollars.
  • Management isn't shy with how it feels about the strength of its assets. It's quarantined about one-third of Citigroup's balance sheet into a unit called Citi Holdings, with the rest going to a new division called Citicorp. Citi Holdings is so dreadful, CEO Vikram Pandit prefers you just forget about it. "We want to be Citicorp, not Citigroup, going forward" he told BusinessWeek. "We're methodically selling and rationalizing what we call Citi Holdings."

When a bank is busy selling and rationalizing one-third of its balance sheet, we have to reiterate Faber's point: It's very unclear where the earnings power is going to come from.

What do you think? Is this a company for which you'd pay $110 billion? Let me know in the comment section below.

For related Foolishness:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.


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  • Report this Comment On August 24, 2009, at 12:11 PM, rcr31 wrote:

    While the commentary is fair, the comparison to Wells Fargo is not. The ONLY reason Wells Fargo is reporting "profits" right now is because they marked toxic Wachovia loans last year. If those loans were accumulating losses right now like everyone else that didnt do an acquisition last year, Wells would have reported a loss in 2nd quarter. They also havent been adding much to their loan loss reserves. Eventually, purchase accounting adjustment benefits end -- so an investor shouldnt be paying for "these record profits" since they're not core earnings so to speak.

  • Report this Comment On August 24, 2009, at 12:23 PM, BriteSide wrote:

    Yes, it is fair. Not because what the liabilities, which were once its assets, are where they are. Not because US Govt backstops. But because of the way Vikram Pandit is managing the company(strange for you to hear??)

    While he would like to forget Citigroup, he has not: he has rather faced it head on. He has, in most cases, consistently and constantly acted through out the crisis rather than wait for a better time to act while sheltering Citi under the Govt's cover.

    I have held stock going down from 8(crisis) to 3(roumors), to 1(shorts) only because of him.

    All liabilities are in themselves not liabilities is either: they will be assets if markets improve.

  • Report this Comment On August 24, 2009, at 12:35 PM, freewave wrote:

    Let's separate some of the referenced companies and look at them individually for a moment to see things from another perspective.

    Goldman Sachs has about $60 billion in equity on the books, and is trading with a market cap of about $80 billion.

    Bank of America has about $220 billion in equity on the books, and is trading with a market cap of about $150 billion.

    Citi has about $150 billion in equity on the books, and is trading with a market cap of $110 billion.

    Not sure if that possibly helps justify some of the run up, but I think the BAC and C bulls believe these are trading at less than they are worth, even after factoring in very large loan losses over the next couple years. Those large forthcoming losses now appear more likely to be offset by a wide interest rate spread and increasing economic demand.

  • Report this Comment On August 24, 2009, at 12:42 PM, TMFHousel wrote:

    Thanks for the comments.

    The point of comparing C to other banks was not to draw direct comparisons, but to put the value in perspective. I tried to make this clear by writing "These are different companies with different balance sheets, so direct comparisons aren't entirely fair."

    -Morgan

  • Report this Comment On August 24, 2009, at 1:17 PM, CityWealth wrote:

    There is nothing to understand C from march onwards has been speculative investment, those who got in C for under a dollar are very rich right now.

    You could have practically invested using a dartboard over the last 6-8 months sucking up all the great companies (AMD hit as low as $1.80 ish, is now 4 dollars) NVDA (low as a 6 bucks, now 13-14ish), INTC (low as 12 ish, now 18-19 ish).

    BAC went from 3 bucks to almost 20 bucks in less then 6 months, that was one hell of an investment for those who got in at the bottom with everything they had.

    There was no need to understand anything when the economic crisis came, a good portion of the smart population heard "STOCKS ARE ON SALE, BUY AS MUCH AS YOU CAN NOW!"

    Didn't matter much what it was, just that you bought and waited, you could have invested almost blindly.

  • Report this Comment On August 24, 2009, at 1:40 PM, jeffe65 wrote:

    I agree with the comments so far; anybody buying C better remind themselves what a speculative stock is, regardless of what sector it's in. I got in back in March, but wasn't brave enough to risk as much as I had wanted. But for the time being, it's a fun ride.

  • Report this Comment On August 24, 2009, at 3:09 PM, dakotaglory wrote:

    Hypothetically here. 10000 shares of WFC would cost $275000 at todays cost. At that cost, it would take me at least 20 years, if not more to afford 10000 shares of WFC. 10000 shares of Citi on March 09 cost $10000. I suspect that Citi will become profitable long before the 20 years it would take me to obtain the same number of shares in WFC. Your thoughts?

  • Report this Comment On August 24, 2009, at 3:12 PM, dakotaglory wrote:

    With that scenario, it would take just $.05/share dividend per year to make up the $10000 invested. That to me is conservative. I also look at Citi as the road to Chinda without investing heavily in that potential bubble.

  • Report this Comment On August 24, 2009, at 4:59 PM, plange01 wrote:

    for all the talk citi will double then double again with in the year and still be a great buy..if you could sit down with a calculator and add up numbers that actully tell a stocks price even reporters would be millionaires!

  • Report this Comment On August 24, 2009, at 5:19 PM, greedwhenfearful wrote:

    Dakotaglory,

    Comparing 10,000 WFC shares against 10,000 shares of Citi is not a valid comparison. This is just as bad as comparing stock prices. Remember stock prices and shares are just fractions and actually tell you nothing unless you do the math.

    WFC has 4.67 billion shares

    C will have 23 billion shares.

    For your comparison, it would be more like 50,000 shares of CIT = 10,000 shares of WFC.

    The fewer outstanding shares of a company the better. This is why this article was written I believe. If everything else in C was equal to WFC, C would have to perform 5 times greater than WFC for the stock to perform as well. Buy WFC and JPM instead!

  • Report this Comment On August 24, 2009, at 5:19 PM, TMFDiogenes wrote:

    dakotaglory,

    It's not the number of shares that's important, but the total amount you invest that's worth paying attention to. So if you're deciding between two investments it's better to consider "should I invest $5,000 in stock A or stock B." Then when you're ready to buy, figure out how many shares you need to order to invest $5,000.

  • Report this Comment On August 24, 2009, at 5:20 PM, greedwhenfearful wrote:

    I mean

    "For your comparison, it would be more like 50,000 shares of C = 10,000 shares of WFC."

  • Report this Comment On August 24, 2009, at 5:27 PM, greedwhenfearful wrote:

    Dakotaglory,

    I would highly suggest reading Motley Fool's Million Dollar Portfolio.

    Also, Jim Cramer's book "Real Money: Sane Investing in an Insane World" has a great section about understanding stock prices using tools like P/E ratios, PEG, etc. I think "Real Money" is a great beginner book and "Million Dollar Portfolio" is a great advanced book.

  • Report this Comment On August 24, 2009, at 6:01 PM, texastar1 wrote:

    Unless one is a day trader knowing what he/she are doing and staying on top of the market movements, I'd stay out of C.

    I am looking for the other shoe to drop in a couple of weeks or so...may be a 20% correction...THEN, stock picking begins...2010 should be a good one!

  • Report this Comment On August 24, 2009, at 6:14 PM, bobbye64 wrote:

    Shareholders of Citygroup are asked to vote on a reverse split. Possibly (1-for2, through 1-for 30). Can this lead to anything advantageous to the shareholders of C? Not in my experience in past performaces of stock. BB

  • Report this Comment On August 24, 2009, at 6:16 PM, TxTom wrote:

    I can only smile when anyone says "stay out of C". Bought it at $1 per share and today it hit $5. If you think people aren't going to continue buying this stock and driving up the share price, then go ahead and invest in MSFT or something "safe".

    I'll continue to ride this stock up after it passes $5 and becomes eligible for additional margin trading. I'll consider getting out after the six or seven dollar mark and then keep it on my list for day trading after that.

    Every day there are less "shorts" on this stock. Do you think all those traders are worried because they think this stock will go down substantially? En contrare!!

    C is good for at least another 30% before it starts to level off... Lots of math calculations fall apart in this post-recession market.

  • Report this Comment On August 24, 2009, at 6:36 PM, texastar1 wrote:

    For the very short term, may be. But when the other shoe drops, WATCH OUT!

  • Report this Comment On August 24, 2009, at 6:37 PM, TMFHousel wrote:

    "If you think people aren't going to continue buying this stock and driving up the share price, then go ahead and invest in MSFT or something "safe" ... C is good for at least another 30% before it starts to level off"

    A lot of people said that about housing, too.

  • Report this Comment On August 24, 2009, at 6:47 PM, VTDFOOL wrote:

    JUST A QUIRK, MY EMAIL ADDRESS PRELOADED INDICATES AN INVALID EMAIL, ENTER A VALID EMAIL. SORRY BUT I WOULDN'T BE RESPONDING TO THIS OR EVEN RECEIVE THIS EMAIL IF THAT EMAIL ADDRESS ABOVE WAS NOT VALID

    VTDFOOL

  • Report this Comment On August 24, 2009, at 7:35 PM, dauril wrote:

    Whatever happened to the concept that the value of a company is what management makes of it? The restructuring was a huge misalignment, producing remote mid-level mis-management. A “new” concept of assembling teams of experts from different but related departments is now being circulated. Something well manage companies have employed for decades. At CITI the tail wags the dog, and the fleas have gained control of the tail.

  • Report this Comment On August 24, 2009, at 8:19 PM, tomd728 wrote:

    Simply amazing......so many bright minds here and a clear consensus remains so elusive.

    Me? With C I am doing something I have never done.

    The entitity is so cheap in stock price,there is enormous interest in same,there appear to be enough guys positive on C regardless of method of valuation, that I had little or nothing to lose by throwing in with the optimists and taking this ride.

    Aside from the above I don't see a compelling argument to avoid.

    Enough to make it worthwhile yet not that much to hurt this years performance in what I hold.

    They don't come around to often........

    Best to all.......

    Tom

  • Report this Comment On August 24, 2009, at 8:56 PM, 7footmoose wrote:

    Citi is the hole into which all toxic assets should be, or is that have been, dumped. When searching the term " zombie bank" in Wikipedia, or on Google or on Bing; Citi is the caricature you will find. I just returned from Las Vegas and Citi is the poster child for "crap shoot." Good luck. Don't bet anything you cannot afford to lose.

  • Report this Comment On August 24, 2009, at 8:58 PM, DigitalDisco wrote:

    I agree with the article looking at strictly current valuation, but the stock market is forward-thinking. The argument that we're having is that Citi may not be worth what it's trading at now, but from what I can deduce from the above comments is that we all seem to agree that it will be worth more later. I think that there is decent support in the fact that, as TxTom pointed out above, the shorts are moving out of this stock. BriteSide also makes a good point in highlighting Pandit's willingness to lop off dead limbs and move forward. I think the market is reflecting the thinking that sparked the current run; Citi will continue to go up in price over the next several years barring some unforeseen catastrophe. And, with inflation waiting patiently in the starting gate for the economic recovery to be announced as complete, I think it's a pretty good time to be a national bank. Regional banks, that's another story...

  • Report this Comment On August 24, 2009, at 9:56 PM, SnapDave wrote:

    Disco,

    We all DON'T agree that Citi will be worth more later. Morgan is entirely correct that C is a dog. On the other hand, many of us are still making the speculative gamble that the stock price will keep going up for a while despite that. People that believe Citi is actually a fundamentally good bank are in the minority.

  • Report this Comment On August 25, 2009, at 12:45 AM, BostonStocker wrote:

    Citi has loan loss RESERVES of about $40 Billion already.

    And it has $100+ Billion in TCE, with the conversion of the Preferred to Common.

    AND they just eliminated ALL the dividends that they were paying to the Preferred shareholders, which is estimated to be worth about $2 per share, after conversion.

    EVEN if Citi takes $80 Billion more in losses over the next 12-18 months (that DOUBLE of what they have taken, so far), that still leaves them with $60

    in TCE, and estimated earnings of $0.60 a share in 2011.

    At 10x that, the share is worth $6. At 15x that, its worth $9.

    Is it going to fluctuate over the next year? YES.

    Is Citi going to go away, be nationalized, go bankrupt? There's a maybe 1% chance of that happening, BUT if that scenario happens, owning Citi stock will be the least of your/our problems.

    So 50-100% gains over the next 12-18 months, vs a 1% chance of loosing it all?

    I choose the former.

  • Report this Comment On August 25, 2009, at 1:37 AM, CruiseStage wrote:

    Wait, Wait, I do not understand.

    so apparently, [1] Citi has "approx. 23 billion shares outstanding" (from this article). I assume the government is holding them?

    [2] Then the authors says, "As I showed a few months back, Citigroup's conversion of preferred to common equity -- much of which taxpayers own -- results in a 75% dilution to existing common shareholders. Once it's completed, shares outstanding go up about fourfold."

    My Question: so is this good for the stock or bad for the stock? "a 75% dilution to existing common shareholders" sounds BAD (like the stock isn't worth as much), but then the author says, "Once its completed, shares outstanding go up about fourfold."

    What does he mean by "Shares outstanding?"

    Is he saying that ... someone who has common stock before the release of the 23 billion shares will have their stock price go down (diluted) or up?

    sorry, i'm a lay person!

  • Report this Comment On August 25, 2009, at 1:56 AM, postivereturn wrote:

    Okay, really quick. Government owns preferred shared shares of CitiGroup, remember the bailout. Now these shares are owned by us, the taxpayers (government). They bought them at "x" dollars, at some-point these preferred shares are going to be converted to common stock which we all own. The outstanding will increase, therefore diluting the value of the stock. Done!! Great stock for a quick profit, then a potential short.

  • Report this Comment On August 25, 2009, at 2:26 AM, whatamitodo wrote:

    I bought 3000 CITIBANK stocks for 2.60$ (ie 8400$). I essentially gambeld with about 1 yrs savings, not knowing anything besides how this giant had fallen. I'm happy to see it 70% higher today.( I also in the past 3 months bought AIB, and thats up 120%, MWA thats up 30% and EXEL thats up 15%)

    Im new to all of this and dont understand what reverse stock splits would mean, what diluting the stock would mean to the price of the stock, but I have a feeling its not going to get back to 2.80$. If it does, I will probably sell at that point to break even. But until then, Im going to hold till I reach enought to make a down payment for my SF condo.

    ;)

  • Report this Comment On August 25, 2009, at 2:40 AM, coerte wrote:

    In these discussions of banking sector positions, I wonder why no mention is made of the Deutsche Bank. As far as I can see, the largest bank not to have taken any funds from any government. Given the somewhat perilous position of the US $ of late, it would seem to be a good play for an American to buy Deutsche Bank stock in Euros. If the recovery happens more quickly than anticipated, the dollar will fall as people leave it as a safe haven and the DB stock will rise (with all other banks). If the bottom falls out in some sort of double dip scenerio, then it would be good to have a position in the banking entity that best mastered the last nightmare.

  • Report this Comment On August 25, 2009, at 3:43 AM, max12345 wrote:

    I treated Citi in pretty much the same way as I treated AIG and Fannie Mae and Freddie Mac. I figured it was beyond me (and most other normal people too) to try to really understand what was going on inside those companies. But once it became clear that they would not be going under, (unless the Federal Reserve and the United States were going to go under too) I bought a reasonable bit of each at very low bargain basement prices.

    I bought Citi at about 1.5 (unlike some of the clairvoyant people above who managed to catch it at 1) AIG at about .4 and FNM & FRE at about .35. I then sold them all at roughly twice what I had paid for them. (no point being extra greedy when one hasn't got a clue what is happening inside the companies and with millions of people both inside and outside the entities obviously engaging in arcane and byzantine monkey business)

    In the kind of market that has existed from about October 2008 through to about May 2009 there were a huge number of stocks that could not really go down any further .....and had only UP to go.

    But of course dreaming that they would continue to go up forever without good fundamentals didn't make a lot of sense.

    Now is probably the time to be OUT of any stocks like Citibank and start to focus on those that clearly have good fundamentals. The easy "bounce" times may be over. (though they were great while they lasted)

    Lots of stuff (like the above) is easy enough to figure out and doesn't require a PhD in finance and months poring over Citibank's balance sheet.

    Citi stock was too low and was heading up for a while....is all anyone really had to understand. (not to mention the fact that my own personal interest in trying to "understand" Citigroup is somewhere close to Zero) (I wish them "lots of luck")

  • Report this Comment On August 25, 2009, at 8:17 AM, jamesd536 wrote:

    All I know is people are buying this stock like crazy right now and shorts just got their clocks cleaned.

    There has been some huge buying on this stock.

    I think Citi has real potential to hit $8 maybe even higher.

    Do agree the fundamentals are not there, but this market seems to be completely driven by Psychology right now!

  • Report this Comment On August 25, 2009, at 9:22 AM, catoismymotor wrote:

    I read. I researched. I poked about the various opinions on TMF and elsewhere. I had myself convinced to pull the trigger. Even though I was planning on dropping only a few hundred on C I could not shake the feeling, the intuitive scream, that it was not right for me to do. I hope those of you that chose to buy C are able to reap wonderful, glorious rewards from your decision.

  • Report this Comment On August 25, 2009, at 10:42 AM, Guinsburg wrote:

    I wonder how many of the ultra-bearish readers were actually kicking themselves for not buying this "bargain", and so they use this as a form of "venting" or simply justifying their inibition with this stock.

    Anyone who avoided this stock at $1 based on fundamentals, probably isn't bold enough to accumulate true wealth in the equities mkt.

    That said, at some point the balance sheet will come into play, but remember one very important [overlooked] point:

    - The single-largest shareholder, the USA Gov't, will not dump its position/capitalize on its profits anytime soon, so keep in mind the astronomical # of shares that will NOT be actively traded, which is a GOOD thing.

    PS: I'm still bitter about Sally (High School cheerleader) not hooking up with me, and bitterly await for her "assets" to drop, too.

  • Report this Comment On August 25, 2009, at 12:33 PM, VegasMartin wrote:

    My guess, Citigroup pulls back into the low $4's in September, but ultimately becomes a $6-10 stock in 2010. Bad loans, conversion already priced into the stock. This article and another about the loan losses come out today and the stock is only down 1 cent -- it's clear that investors are shrugging off this news.

    http://www.ShootTheBears.com

  • Report this Comment On August 25, 2009, at 1:05 PM, CruiseStage wrote:

    VegasMartin - based on my zero financial knowledge, i agree with your opinion. the government probably won't sell ALL of its shares on one day come Sept. 9th when its eligible to, but the market might see some pullback on Citi come then.

    just like surfing, right? if you see the wave already, it's too late.

    then again, wise (wo)men say never to time market.

  • Report this Comment On August 25, 2009, at 1:09 PM, oghowie wrote:

    Please sell people. I need a better entry point. :)

    I see this as a very safe long term pick.

  • Report this Comment On August 25, 2009, at 1:55 PM, Jaksnipe wrote:

    there does seem to be some begrudgement from people who would like to see C's 2009 gains erased, for whatever reasons they may have. personally i see C as a good long-term investment that provides some pretty good gains from volatility in the near term.

    C has done a fine job investing outside of the US where economies seem to be recovering faster than ours (and default rates are lower), and that may turn out to be a saving grace. so while i'm not a huge fan of C's management team as a political entity, i wouldn't sell them -- or the stock -- short just yet.

  • Report this Comment On August 25, 2009, at 3:57 PM, jesse2159 wrote:

    From November 1963 to May 1967 I worked for FNCB, now known as Citi. Often, (actually very often), South American juntas borrowed tons of money from the bank and within a year the money had vanished into Swiss numbered accounts and FNCB reported "losses" as the country defaulted. Except, FNCB got some very good deals ( like a paso a year) to establish a bank branch where wealthy patrons could pass money out of their country though FNCB. They expanded into over 100 countries under some dubious circumstances, so, another slight of hand is not shocking.

  • Report this Comment On August 25, 2009, at 4:31 PM, CruiseStage wrote:

    VegasMartin - based on my zero financial knowledge, i agree with your opinion. the government probably won't sell ALL of its shares on one day come Sept. 9th when its eligible to, but the market might see some pullback on Citi come then.

    just like surfing, right? if you see the wave already, it's too late.

    then again, wise (wo)men say never to time market.

  • Report this Comment On August 25, 2009, at 4:42 PM, TxTom wrote:

    It didn't take "clairvoyance" to understand Citi was a buy when it hit a dollar a share.

    At about the same time, the federal government said they wouldn't let any major banks go under. That was the only remaining risk at that point. Anyone able to actively watch the stock market at that time bought into the banks. That's why they didn't drop lower. Same story with BAC @ $3, FITB @ $1.10, STT, WFC, BK, etc. They were all ridiculously cheap.

    All large banks will not only survive, they will thrive coming out of this fiasco. Citigroup is no exception. $10 per share during 2010 is a low target to hit. We tend to forget that 100% per year is a very nice return, after realizing 400 - 500% since March.

    Call Citi a "dog" all you want, but it continues to move up. Seems like the only people griping are the ones not in bank stocks. Funny how that works...

  • Report this Comment On August 25, 2009, at 9:06 PM, SeekingOpps wrote:

    I didn't see anyone talking technicals. MACD divergence began about two weeks ago. Moneyflow is diverging as well as accum/dist. Volume is also diverging.

    Back in April and May the price was around 4.40 and dropped approximatley 42% to form a double bottom. And then this last move up. Now it is way over bought based on RSI and Full Stochastic.

    Of course, the news about the economy has improved over the past month, but it seems that C is ready for a pull back or at least tade sideways until some big news happens.

    Yes, it kissed $5, but this horse has been running hard with news that is better but not stellar. Personally, I m betting on a retracement. I sold half of my position at 4.90 and remain averaged in at 3.86 with stops in place. Stops are a good thing.

    I can't figure out what the company will look like and agree that the fully diluted earnings will not be good for quite some time.

  • Report this Comment On August 25, 2009, at 11:57 PM, whatsURRMOTIVE wrote:

    i thought the gov. got 34%.and at a strike price of 3.25..anyways at some point in the future c will buy the shares back and discontinue them.why is cramer and dick bove saying c will go to $12,bove says after the sept. oct. pullback though,and it went up a $1 since then.other experts have said they are accumulating c shares too.y are other stocks $4 to $20 that have negative earnings and strong competetors 4 to 20 up 100% to 500% since march 9th.and in banking theyre not competetors that put each other out of business.theres plenty of business

  • Report this Comment On August 26, 2009, at 7:26 PM, Intlinvstr4life wrote:

    Ah foolish friends, is stock price and it's associated drama your only measure of a successful investment? too much market psychology and speculation to be an indicator of any real value. I prefer to make money off the companies I invest in, rather than off of the poor saps who stink at timing ups and downs in markets (namely everyone without insider knowledge). In this market, the propensity and willingness of a company to reward its share holders for allowing companies to use share holder wealth is by far a more real test of a company's mettle. Understanding this concept is the first step towards rising above the ranks 'Day Trader' and into the less SOAPish realm of 'Investor'. Of course without the drama of stock prices, Mr. Cramer and CNBC would be sorely in need of filler content.

  • Report this Comment On August 26, 2009, at 8:35 PM, SeekingOpps wrote:

    Wow thanks for the input. Nice philosophy, buy do you have any meat and potatoes from a technical or fundamental perspective that may help us out?

  • Report this Comment On August 27, 2009, at 2:41 AM, thomdd1959 wrote:

    Citigroup is owned by the same "Banksters" that own "The Fed Scam"! Do your research!

    The only real financial crisis of the U.S.A. is hiding in the audit of “The Fed Scam”!

    We demand to know where our ONE POINT TWO TRILLION DOLLARS is now!

    Alan Grayson (High Quality Version): Is Anyone Minding the Store at the Federal Reserve?

    http://www.youtube.com/watch?v=cJqM2tFOxLQ&eurl=http%3A%...

    Audit “The Fed Scam” bills HR 1207 must pass in The House and S 604 must pass in The Senate immediately! Any Representative or Senator that does not vote in favor of and support these bills or tries to “water-down” or stall these bills is clearly a Traitor and “Sold Out” the United States of America!

    “Few men have virtue to withstand the highest bidder.” --George Washington

    Does our government think that we are now here to serve them? Are they out of their minds?

    Some of our leaders today have acquired a very “twisted” view of their roles. Do we now have those who can no longer handle the power we entrusted them? Why have they abused and taken advantage of us? Do they no longer think they are accountable to us and believe they can do whatever they please? Our “public servants” have developed a “spirit of insubordination” and have gotten way out of control! This has to stop right now! This is ridiculous! If they do not want to listen to and serve us wholeheartedly, we no longer need them! “We need to do a major house cleaning immediately! Enough is Enough!

    It’s time for “We the People” of the U. S. A. to get VERY ANGRY!

    We need to keep a real close eye on all our government “public servant” employees. Our government was set up to serve U.S. and we no longer want any secrets about our money. We no longer want any misguided governmental arrogance directed at us!

    This Is A Very Public Matter!

    We demand real transparency, with open books and plenty of civilian watchdog czars. Government czars are an insult to the intelligence of the American people! Many of are entrusted government employees are a total disgrace to U.S. They only care about their own best interests!

    The most conniving, low life, manipulators in all of history put “The “Fed Scam” together! Since its inception in 1913, “The Fed Scam” has helped to devalue our dollar by 95%. During the recent economic crisis, it has poured TRILLIONS of dollars into the economy with no oversight, has made secret agreements with foreign banks and governments, and has refused to tell Congress or the American Public who is getting our money. They have the power to print it, but it is not their money! This is our money! They are blood-sucking thieves!

    End “The Fed Scam” Now! We must never again allow private banks to create or control our money! Why should we pay interest on our money! We must never again allow our “public servants”, to keep any secrets about our money! Our big mistake was to trust our government. They can not be trusted! History has taught us this, over and over again. We have been warned over and over again. Why do you think we have so many economic problems now?

    “Congress can revoke central bank’s charter ‘at any time’” --Ron Paul

    http://www.tomdavidd.com/blog/

    Anybody who supports “The Fed Scam” is clearly a Traitor to “We the People” of the United States of America!

    “We can all commiserate forever about how bad things have been, are, and will continue to be. But I don’t think that we can afford to wait for elections in order to have our say about putting a stop to this madness. Enough, already! Let’s start talking treason, prison, and death penalties for all malefactors in government who subvert, ignore, skirt and otherwise trash the Constitution of these United States of America. Those who have sworn to uphold the Constitution and have then ignored their oaths of office are guilty of perjury and malfeasance in office.” –Stephen A. Langford (personal communication to this author)

  • Report this Comment On August 27, 2009, at 12:36 PM, TxTom wrote:

    How do you folks like Citigroup now?

    Let me see.... John Paulson has no idea what he is doing?

    :-)

    Happy trading!!!!

  • Report this Comment On August 27, 2009, at 4:39 PM, Intlinvstr4life wrote:

    Sorry all, I don't have much to comment on about ‘C’ specifically (I own it) since I'm still assessing its value as a company in the post TARP economy, but I think using separate examples might help some come to their own conclusions about C independently in these turbulent times. I'm not a professional investor, just an opinionated fool who's found an anonymous voice in the echoic halls of TMF.

    SeekingOpps,

    Dividends my good man, Dividends.

    Propensity: Is the company capable of being profitable and to what degree? This question separates the "Buffets" from the rest of us. Ultimately how the individual investor assesses propensity will determine over all success. If a company can’t generate profits, it can’t legitimately entertain offering dividends.

    Me personally: since I'm less than a math whiz and quite frankly don't trust calculations I can't logically tie back to corporate decision making, I try to asses whether or not the company's overall management style is capable or even interested in generating bottom line profits. For example, in the midst of the Q1 downward spiral, what was the fundamental difference between say Ford and GM? Some would say Ford chose to dig in and make tough decisions that it felt would ultimately lead to profitability. Is it working? time will tell. GM on the other-hand chose to take bail-out money and is hoping that it can weather the storm until sales figures return to previous levels. Will it work? time will tell. Personally, this difference in management style speaks volumes. Ford is beginning to show the fruits of its labors - and shareholders are currently happy too. I bought Ford on this basis back in March; call me a fool if you like.

    Willingness: Are the Chief Officers, board, and/or Preferred Shareholders a bunch of schmucks who think the common stock pool is nothing but the whiney-nose bleed-section? Or do they try and find creative ways of hiding revenues in order to pad superfluous line items in the income statement (I find prolific use of "other" to be a scary sign) or their own pockets? Why would you want to give your money to people who regard others as such anyway? To me, again it speaks strongly that the management appreciates the use of your money and is doing everything it can to service their "debt" to you as the shareholder. A clear Income Statement, Dividend history, and the ambient environment in which a dividend is issued would things to consider together.

    Why am I so keen on dividends? Because typically you can buy more stock with them. And the more stock you have the more dividends you get, etc. That makes sense to me. But again who the smell am I anyway?

  • Report this Comment On August 27, 2009, at 5:21 PM, multi007 wrote:

    I understand the article, but unfortunately retail investors are not in agreement as they keep bidding up the stock - closed today 8/27/09 at 5.05 a share.

    Full disclosure - I own 1000 shares at $3 a share.

  • Report this Comment On August 28, 2009, at 1:36 AM, rstackman wrote:

    I read all these comments and laugh...This is why you trade off of the technicals.

    Two Things:

    1. There are way too many factors that go into the fundamentals of a company and unless your an insider of the company; you won't know everything.

    2. The market does not price the stock based on the reality of company's situation. It is based on emotions, hype, and perception.

    Didn't anyone learn anything from the dot com bubble?

  • Report this Comment On August 28, 2009, at 10:50 AM, texastar1 wrote:

    Predication: C might touch $6 and as the market corrects in 3 to 9 weeks, will drop to $3. Great short anywhere between $5.5 and $5.9.

    Same applies to BAC...I expect it to go back to $12.

  • Report this Comment On August 28, 2009, at 11:17 AM, darvant wrote:

    CITI makes my head spin. Although Faber seems correct, he still seems to not take into account that in the upcoming shareholder meeting, the BOD proposes a four-fold increase in common shares, from 15B-60B (a potential 75% dilution in my math experiences), plus a future reverse split. That's even worse than Faber implies. Thus, it seems to me the company is diluting debt at the expense of shareholders (80% USA taxpayers), while stockpiling a barrel of money for officer and employee bonuses (as usual), as it will appear that the debt has disappeared into new spin-offs. Reverse splits are usually horrific to shareholders, and the prospects of near-term profiting from CITI look grim, except to day-traders - and that's what makes my head spin, the continuing shell-game that devastates long-term investors.

  • Report this Comment On August 28, 2009, at 11:27 AM, TxTom wrote:

    We shall see which group is correct about the banks. If anyone thinks BAC will drop to $12 and C back to $3, short these stocks and "C. Howett Fields".

    You'll never see $15 BAC or $4 C again as long as you live. Those prices are history. Banks continue to borrow at essentially zero and lend at whatever the law allows. Even I could make money with that sweet deal.

    Has anyone noticed the price of C and BAC since this article was written? Up... up... up.... Analysts try to say financials are "overbought". From what level? They were beaten to a pulp and driven WAY down below even their book value, not to mention earnings potential.

    Stay on the sidelines and watch financials. In a few months come back and tell us how much profit you didn't make.

    Happy investing!!

  • Report this Comment On August 28, 2009, at 1:39 PM, timezmoney wrote:

    One of the reasons Citi is going up is that they are selling Bell systems in Japan for 1 billion $, Citi owns numerous assets, in the billions, that we can't calculate, but the big guys know all about it, you're the last person to know.

  • Report this Comment On August 28, 2009, at 5:01 PM, Netteligent09 wrote:

    Citigroup CEO Vikram Pandit, Board of Directors, and cronies...You are FIRED !!

    Stocks will double over the news....

  • Report this Comment On August 28, 2009, at 5:13 PM, kostas10 wrote:

    All maths and book value calculations seems to be fair arguments and should see C going down.

    However that would mean that Citi officers that have bought millions of stock in the last six months in the open market at prices anywhere between 1,25 and 4 dollars a share are stupid?

    Or do they know something more that analysts don´t know?

    . No-one knows a company better than the insiders and Citi insiders keep on buying more and more.

    I think I ll go with them.

  • Report this Comment On August 29, 2009, at 9:21 AM, NFLNostradamus wrote:

    Count be as another Citi sucker. I've got to say the transparency that is forthcoming from them about the exact figures of their loan modifications adds to their appeal in this age of REO hide-and-seek. Plus, the worse the FDIC condition gets from failed regionals, the more likely Citi reaps the rewards with their US Gov badge on their searsucker suit lapel.

  • Report this Comment On August 29, 2009, at 10:34 PM, SeekingOpps wrote:

    Another thought.... When the exchnage is completed they expect an additional 17B common shares outstanding. Based on latest quarter information from ATrade they currently have 5.2B shares out. This would bring the total to 22B give or take a few 10s of millions. I'm suspecting that they will follow do something similar to what AIG did and at some point after the exchange there will be a reverse split. Maybe that is one of the reason insiders are buying?

    Good thing is after the RS preferred dividends will be at a minimum.

    The scary thing about the RS is that the authorizerd shares will be huge and may leave the door open for dilution in the future. However, revenues are nice now but the revenue generating ops will be reduced with the selling of assets.

    Tough call. Need more research here.

  • Report this Comment On August 30, 2009, at 11:02 AM, JustATrader wrote:

    Ok I am quite new to this ..but from what author said about 23 billion shares..the way I understand this is once Citi is in good shape and is giving loans it can always pay the TARP money i.e 45 billion back with what ever interest rate charged and get back to business.

    In that case I would assume Citi shares were worth $ 40 before recession and no one raised a question about that so that was a fair value for the company. Now once it repays the loan and is back to profits why would the shares be diluted?? I thought TARP money was always meant to support the banks and the dilution would only come when government takes control of the company....so if Citi pays back the loan then it might not be worth $ 40 /share but atleast $ 10 would be a fair guess.....

  • Report this Comment On August 31, 2009, at 9:08 AM, rhu88 wrote:

    Lots of reasons to buy and not buy C. I bought 48,000 shares at an average price of $2.68. I think this is the largest amount I read in this thread. I was shorting financial stocks via SKF and SRS since Feb 27, 2007 - so I wasn't a bull all the way down to 670 on the SP500.

    Reasons for buying C.

    1. US Govt has put as a commitment $270 bn 10 yr guarantee on C assest plus other small change of $20 and 30 bn earlier. Which other entity in the world has any govt put so much money in any instituion at any time? Nowhere? WHY would the US govt do that and then let it blow up? Isn;t that stupid? If you want to let it blow-up, then let it blow up in mid-march 2009. It would have cost less!

    2. Prince Alwaleed owns a ton of C stock at much higher prices. he has not sold. What many people don;t know is that Alwaleed is rumoured to be the front man for private Saudi Royal money (beyond the state funds). That means the Al-Saud's have big money in C. If you don;t know who the Al-Saud's, well, I can't blame you for missing my point. The US govt could have even let GS fail but not C. Why? If the US screws with the Al-Saud's PRIVATE money by letting C fail, then you may perhaps see oil at $300 - just so that they can regain their losses, and they make a point to Americans.

    3. C went to $50+ at its heights. And it dropped to 97 cents at the low. THe world's largest bank in 160 countries - where countless millionaires and billionaires have their money invested in Citi bank accounts and other financial products. If C failed, FDIC does not cover losses for everybody in the world - just banking assets in the US. It would be a hellish world if we blew up the wealth of the riches t movers and shakers in 160 countries if C went under. What would that do to the world financial system? It would have been a Lehman X100. So, why do you think the US govt pops in $300 billion? Thin about it. And if you thought about it - would it not make sense for you to buy some C whether at $1 or $3 when it was trading for $50+

    4. Other reasons. But the most important reasons ate up there. There will be shakeouts to scare most of the people who have expressed their opinions on this thread. My opinion? The US govt will use C as a clarion investment of the century when it exits its positions, and long after the financial crisis and blow-ups of 2008, the US govt will be lauded as a genius to have invested in C. That's my prediction. And I will sell most of my shares on that same day. I still have 44,000 shares at 5 and change. I sold out about 4000 shares to buy "other stuff." Call me a Fool, but see you on that day when the US govt exits C. In the future, WSJ will have an article that says to this effect: "Treasury made the Investment of the Century - Citigroup." I only have 44,000 shares at a $2.60 profit on the line.

  • Report this Comment On August 31, 2009, at 9:27 AM, rhu88 wrote:

    QUOTE

    On August 28, 2009, at 10:50 AM, texastar1 wrote:

    Predication: C might touch $6 and as the market corrects in 3 to 9 weeks, will drop to $3. Great short anywhere between $5.5 and $5.9.

    Same applies to BAC...I expect it to go back to $12.

    UNQUOTE

    Dear Teaxstar1 - with all due respect, pls tell us when you actually short C between $5.5 and $5.9. I'd like you to post it. Tell me how many shares.

    I'll but the same amount of shares at the market.

    Just to let you know, I am on the other side of your trade.

    Thanks (no mean comments necessary. Put your money on the table to back your opinions up).

  • Report this Comment On September 02, 2009, at 5:05 PM, scratchdisk wrote:

    Is there any changes that all those prefered shares will not be converted to common? Maybe C buys them back or something like that?

  • Report this Comment On September 15, 2009, at 5:17 PM, ginger1213 wrote:

    This might not be a financial comment, but please explain to some who is not that knowledgeable. Why after we the tax payors saved Citigroup and BOA they have the right to increase our interest rates in different situations. The arrogance of these two among others afterr they beged for our money is some thing I do not understand. Please guide me.

  • Report this Comment On September 22, 2009, at 6:25 PM, ChengisXan wrote:

    One thing to consider is govt. travel cards are Citibank.

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