Friday, January 16, 2009

A Screed on Citi . . . and a Comment on JPM reports: "Citigroup Reports $8.3 Billion Loss, Splits Into Two"

With an online straight face the writeup quotes Peter Sorrentino, a money manager who manages OPM (other people's money) and has lost them money because the fund he manages owns Citigroup shares. Mr. Sorrentino says, "It looks like a kitchen-sink quarter. Sweep it all in there and get this behind us.”

DoctoRx here. Bloomberg should have gone to someone who was short "C" rather than long it for a comment. In "Getting Better All the Time?" (Jan. 13, 8:16 AM) I stated that any individual who was long "C" was a "gambler" and any money manager who had been net long "C" was worse. The stock was about $5.60 then and is down about one-third in just three trading days. Yet it allegedly is valued by the market at $21 B. That's still real money.

Here are some additional comments about Citi.

Nouriel Roubini told me last month that Citi has continued to value its subprime CDO/CMO holdings way above market, at over 60 cents on the dollar.

When I became a Smith Barney client, I already banked at Citibank. Naively, I assumed that the coordination between Citibank and Smith Barney would make matters easier for us. But no!

Sandy Weill had never bothered to integrate Smith Barney with Citibank. You cannot make this stuff up. So Smith Barney used PNC as the correspondent bank. In 8 years with Smith Barney, it never affiliated with Citibank, or if it did so, no one bothered to tell me. Once I was on the phone with a Smith Barney stockbroker. His computer caught fire. More than twice, different SB brokers complained to me how antiquated their hardware and software were. Two brokers each were responsible for billions of dollars of client money. Yet neither one got his own Bloomberg terminal. So any half-way sophisticated question could not get a quick answer. Was that good for business? I think not.

Without going into details, I can comment on other points that make me wonder why Smith Barney was propounded as a jewel in the Citigroup firmament.

It would appear that with Smith Barney allegedly having been a crown jewel at Citigroup, the rest was, overall, costume jewelry.

NOW, we read in today's news that the all-stars at Citi are splitting the company into two companies. The term "creating shareholder value" is left out of the article (mercifully). Given that Citi knew the "dance" had ended a year-and-a-half ago, is the timing just perhaps a bit late here?

With "C" still retaining a $21 B market cap, there has to be lots of selling pressure from institutions that want to get out before the market cap goes the way of Fannie and Freddie, which is to say much closer to zero. My guess is that many individual investors of Citigroup will stick with the stock under the theory that it is not worth selling now, and perhaps it will come back significantly. I thus continue to believe that the risk-reward is not favorable toward Citigroup stock even at the current price.


Citi/Sandy Weill was/were the public prime mover for the repeal of the Glass-Steagall Act in 1999. Robert Rubin championed this legislation while Treasury Secretary and soon after leaving Treasury, joined Citi as co-chairman. Now, we have a credible source, Institutional Risk Analytics, allege that Mr. Rubin is in contact with Mr. Geithner up to several times a day.

From a financial standpoint, this appears to be a change of administration but may well not represent a real change from my standpoint as an investor. (Social policy may be a different matter where there may be real change from the new Administration, but this is not a political blog.)

Citigroup and Robert Rubin have been at the epicenter of the boom and the bust. I think that the rise and near-collapse of Citigroup is a more consequential matter in the sweep of history than were the collapse of Bear, Stearns or the bankruptcy of Lehman Brothers.


Is JPMorgan Chase next to break down? Given the history of Mr. Morgan, the Panic of 1907, the subsequent formation of the Federal Reserve system in 1913, and the fact that the truly bad news is now "out" re Citigroup and BofA, this is also a historic and fraught topic. Both the JPM stock chart and the company's fundamentals are pointing downwards . . .

EPILOG 2: As I finalize this post, JPM stock has suddenly down 7% after a marginally up opening. Honest, I wrote this pre-open!

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