Who Will Take Over Citi?
Felix Salmon
About this author:
As John Carney notes today, Citigroup's (C) market capitalization is $21 billion; that of Goldman Sachs is $20 billion. Can anyone say "merger of equals"? Nothing's unthinkable in this market, not even the idea that you can tie two rocks together and hope that they float. Reportedly Lloyd Blankfein approached Vikram Pandit with a merger proposal in September, and was rebuffed; now, however, the matter is out of Pandit's hands, and Citi's board might be more amenable to such a suggestion.
A Citi-Goldman merger would give Citigroup much more credible management, assuming that the Goldman guys took over most of the top jobs, and would give Goldman a much-needed deposit base, not to mention huge distribution capacity through Smith Barney. An enormous number of Citigroup investment bankers would surely lose their jobs, but that is probably going to happen anyway. Meanwhile, Goldman's investment bankers would suddenly see their deal pipeline fill up with the job of selling off all the bits of Citi they had no interest in keeping.
Possibly more likely is the idea that Citigroup will be nationalized this weekend, with shareholders being wiped out. John Hempton today sketches out what might happen if bondholders got wiped out at the same time; I'm reasonably confident that in the wake of the Lehman debacle there's no way that Hank Paulson would let that happen.
In any case, with Citi shares trading at less than $4 apiece, something needs to be done. That's one of the problems with having a public listing: Everybody can see when you're in distress, even if you stop displaying the stock price on the screens in your offices. The market is essentiallly forcing the board's hand here -- not to mention that of policymakers. Citi's managed to muddle through this week. But my guess is that there will be some kind of major announcement over the weekend.
Disclosure: No positions.
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This article has 10 comments:
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Rhunzzz
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23 Comments
Nov 21 03:07 PM-
slickvguy
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27 Comments
Nov 22 11:02 AMThat about says it all. You know nothing about the future. But don't let that stop you from writing. Must write, must write, must write...
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Outside Observer
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11 Comments
Nov 22 12:07 PM-
cpatwork
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5 Comments
Nov 22 02:30 PMmaybe you should consider becoming a food critic, movie critic, or something that requires just opinion rather then facts..that is what your articles are missing the numbers behind this bull.... ;)
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RCA
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53 Comments
My Website
Nov 22 03:54 PMHowever, many people these days need to be spoon fed and their brains are not at all engaged by this implicit request to do some thinking. Subtlety and conjecture are lost on those who are incapable of analytic thought.
Felix, I don't always agree with you, but I am always appreciative of your willingness to put your ideas out for public consumption (and, regretably, for purile criticism). You'll notice that the most obstreperous of your critics never have anything useful or enlightening to offer -- only vapid vitriol.
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READ THE PAPERS
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1 Comment
Nov 22 07:10 PM-
beach chic
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3 Comments
Nov 22 08:07 PMWhew...my Smith Barney adviser is not telling but says all is well and we will know by Monday.
On Nov 22 07:10 PM READ THE PAPERS wrote:
> IF CITI IS NATIONALIZED AND SHAREHOLDERS WIPED OUT, JP MORGAN, BOFA,
> WELLS, USBANK, PNC, MORGAN STANLEY, MERRIIL AND GOLDMAN SHARES WILL
> ALL BE TRADING IN THE $1 RANGE IN 2-3 DAYS AS NO ONE WILL WANT TO
> OWN ANY US BANK'S SHARES EVER AGAIN. WE WILL ALL BE LIVING IN A FINANCIAL
> STONE AGE BY NEXT SPRING I DON'T THINK EVEN THE GOVERNMENT IS THAT
> DUMB.
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vaughn
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16 Comments
Nov 22 09:07 PMCitigroup will continue trading next week. What might happen over the weekend is that vikram pandit may be asked to leave in order to boost the morale and hopefully pop up the share price. What's unthinkable in Citigroup now is thinkable in terms of selling itself, merging with somebody else, or disposing its so called "universe banking model".
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mik123
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20 Comments
Nov 23 03:20 PMI don't see one analyst stating to sell any of the big three financials. In fact I have seen Dick Bove and Mayo say buy with price targets 3-6 times Citigroups current price. These are two of the top 3-4 analysts who rate the stock. Mayo came out Friday after the close and said the minimum value would be $9+ .
Citigroup and the other two are only in this predicament because of Paulsons decision last week to abandon the whole purpose of TARP - to purchase troubled assets. When he made the announcement, he said some of the same original banks will now need additional injections. What is he waiting for. Citigroup, Bankamerica,JP Morgan, lost up to half their value with Citigroup being the worst. If you eliminate short selling, Citigroup would rally. What's happening is you have a huge amount of short selling and at the same time their buying cedit default swaps. Watch what happens to the stock if the SEC re-instates a ban on short selling on financials. Christopher Cox of the SEC has a conference call Monday regarging this. Citigroups financials are actually better than Bankamerica and JP Morgan since both purchased companies with very bad financials. These are the three largest financials in the United States. Once Citigroup gets through 2009, it will get back to earning 25 billion per year. At 10x earnings that's a 250 billion market cap which is 12.5x the current market cap. 12.5x the current price takes it to $47 a share. Investors who bought GPU after Three Mile Island at $3 ended up getting 20-30x their money. It takes guts when it looks questionable. You don't panic because profiteers are trying to destroy the stock so they can make a quick buck. Nothing has changed with Citigroups financials in the past month when the President of the United States, Fed chairman Bernacke, FDIC chairwoman Sheila Bair, Treasury secretary Paulson all agreed that Citigroup would takeover Wachovia.Go to the FDIC's website and read the Sept. 29th press release. They were obviously healthy enough then. Citigroups financials will begin to improve quickly with gas prices cut in half. Eighty percent of the country lives paycheck to paycheck. With your average couple paying $50 less per week in gas, that's $2,600 extra for mortgage and credit cards that wasn't there in August when it was still $4 a gallon. Consumers only had this
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Big Al45
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95 Comments
Nov 23 03:28 PMThink you probably need to disclosure your family or business relationship to Felix.
Agree that Felix has a great feel for identfying hot button topics and putting them out for public debate. Its just that he doesn't spend a lot of care developing his ideas before posting them.
On Nov 22 03:54 PM RCA wrote:
> Speculation has been a well-utilized journalistic conceit for many
> years, especially on the op-ed pages. it is designed to get the reader
> to think, not to offer a black-and-white, definitive answer to complex
> issues.
>
> However, many people these days need to be spoon fed and their brains
> are not at all engaged by this implicit request to do some thinking.
> Subtlety and conjecture are lost on those who are incapable of analytic
> thought.
>
> Felix, I don't always agree with you, but I am always appreciative
> of your willingness to put your ideas out for public consumption
> (and, regretably, for purile criticism). You'll notice that the most
> obstreperous of your critics never have anything useful or enlightening
> to offer -- only vapid vitriol.