Citigroup Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Too-big-to-fail Citigroup (NYSE: C  ) dropped 22% in intraday trading today after a lawsuit filed against competitor fueled fear that Citigroup is facing a rising risk that it will need to make good on fraudulent mortgage securities.

So what: American International Group (NYSE: AIG  ) announced that it's suing Bank of America (NYSE: BAC  ) for $10 billion on grounds that BofA (and its acquired Countrywide Financial unit) committed mortgage-securities fraud. The news came on the heels of last week's SEC filing by BofA that claims over bad mortgages are on the rise at government-sponsored entities such as Fannie Mae and Freddie Mac.

Now what: The cost of making good on fraudulent mortgages could be higher than expected for Citigroup and many other banks. That would further deplete already weak assets and earnings at a time when it's not clear how banks will make money for real. Fears that the economy is slowing exacerbated the sell-off. Citigroup's reverse split in early May seems have been an accurate signal to dump the stock, which has subsequently underperformed both the S&P 500 index and the SPDR Financial Select Sector ETF (NYSE: XLF  ) .

Interested in more info on Citigroup? Add it to your Watchlist.

Fool contributor Cindy Johnson owns no shares of any company named above. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (3)

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  • Report this Comment On August 08, 2011, at 5:15 PM, TEBuddy wrote:

    The sad thing is that Citi is making money, and no one recognizes that. Some other banks are actually losing money each quarter still, but Citi is relatively strong, was allowed to issue a divide, albeit 1 cent, it was approved. Citi is in a much better position than BoA.

  • Report this Comment On August 08, 2011, at 8:11 PM, FoolishRat09 wrote:

    The sadder thing is that Citigroup is even still in existence. They have pummeled thier customers like a loan shark, raising their interest rates on long term customers up to 29.9% to try and return themselves to profitablilty (and get back to bonusing theimselves after only one year). They and all their cronie bankster friends like Jamie Dimon should be residing in prison with their too big too fail empires torn assunder. The disasterous decisions they made leading up to the financial meltdown and the fraud they have perputrated on the American people (and so far gotten away with) should have the SEC's full attention. They will buy their way out of prison, because they wom the clowns in DC. Yeah, great stock.

  • Report this Comment On August 09, 2011, at 10:40 AM, chadscards1274 wrote:

    FoolishRat09 - I'm assuming the 29.9% that you refer to is on a Citi Credit Card? If that's the case there are other cards. I personally did have a Citi card and when they released the news that their rate would be 29.9% (or 19.9% if you paid on time) I called and cancelled the card. That ends up being a matter of choice not something underhanded Citi did. If you don't like what Citi is offering then switch to another company. Voting with your feet is more effective then lashing out.

  • Report this Comment On August 10, 2011, at 4:34 PM, wasmick wrote:

    @MHenage,

    Why vote with your feet when you can impotently rage against the man?

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