Citigroup: Another Bad Deal

by: Zacks.com November 26, 2008 | about stocks: C    

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Over the weekend, the government decided to guarantee over $300 billion in Citigroup, Inc. (C) assets -- and let me assure you that those are the most worthless assets on C’s books -- for up to 10 years in the case of residential backed assets and five years for non residential backed assets. Citi is on the hook for the first $29 billion, and after that the government absorbs 90% of the losses.

In return, the government gets $7 billion of preferred stock which pays 8%, and gets warrants for $2.7 billion of common stock. However, the strike price on the warrants is so high that Citigroup’s stock price has to rise 281% from Friday’s close before they are in the money.

We finally get some real restriction on the payment of common dividends (no more than $0.01 per quarter for three years). Taxpayers get no real voting rights, unless Citigroup misses dividend payments on the preferred for six quarters. Oh, and all those geniuses running Citi that got it into this mess get to keep their jobs. The same cannot be said of the 52,000 tellers and back-office folks who are really not responsible for this mess.

The amount of cash that the taxpayers have thrown into the money pit that is Citigroup, Inc. exceeds its current market value. If by some miracle the economy manages to pull through this mess and Citi survives, the taxpayers get a very limited reward (but the Saudi prince makes a fortune).

The "Citi" never sleeps, and it doesn’t let anyone else sleep peacefully either. The bounce in the market today is a sucker's rally.

Yes, we needed to save the institution that is Citigroup; its failure would make the failure of Lehman Brothers look like a little bit of market indigestion rather than the massive heart attack that it was. However, why, when bankers come hat-in-hand, can’t we have somebody negotiate on behalf of the taxpayers? Why does the auto industry get raked over the coals (they should be, but the double standard here is glaring) in congressional hearings, while bankers get sweetheart deals over the weekend with no scrutiny.

It should not be that hard to negotiate with these people. This is your kids' money here, folks -- yours was gone a long time ago. Furthermore, the involvement of Tim Geithner (Obama’s pick for Treasury Secretary) in crafting the package does not leave me feeling good about the future.

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This article has 10 comments:

  •  
    Nov 26 07:54 AM
    Indeed it doesn't look like a good deal.
    Reply | Link to Comment
  •  
    Nov 26 08:10 AM
    are you including the mexican investor that just purchased all that stock?
    Reply | Link to Comment
  •  
    Nov 26 09:05 AM
    Could not have been said better:

    ""...why, when bankers come hat-in-hand, can’t we have somebody negotiate on behalf of the taxpayers? Why does the auto industry get raked over the coals (they should be, but the double standard here is glaring) in congressional hearings, while bankers get sweetheart deals over the weekend with no scrutiny...
    ...the package does not leave me feeling good about the future...""

    Hand-cuff these hypocrites. They sacrifice what's left of the industrial base in the US, the livelihood of millions of hardworking people, on the altar of big swinging financial dinosaurs who should be history by now. Break em up, save the orphans and widows portfolios, but let the rest go down the drain. For the future wellbeing of mankind.

    Have a good day
    Reply | Link to Comment
  •  
    Nov 26 10:05 AM
    If you wanted to crash a countrys economy to lower wages, break big unions and take over a government how would you do it ?

    Have a quite COUP during an election ? check
    Scare the people with Terrorist ? check
    Bankrupt most programs? check
    Turn Government programs over to lobbyist ? check
    Transfer Billions to your friends? check
    Buy 99,000 ac in Paraguay to hide on if plan fails? check
    Freeze Credit ? check
    Bankrupt the treasury ? check
    Have Private Military ready ? check
    Have Patriot Laws past ? check
    Have large holding facilities? check FEMA holding facilities

    Feel free to add to the list. Also check and see if Bush has done the samer thing since 2000. You might be amazed.

    Holding my breath till Jan and praying he actually leaves office.
    Reply | Link to Comment
  •  
    Nov 26 11:49 AM
    It seems that Asking Alpha is protecting a short position for self or friends. The anti-Citi rant goes on and on and on. Scare tactics worthy of WWII propagandists. Citi is one of the most widely held stocks in the USA. I question your integrity, honesty and patriotism.
    Reply | Link to Comment
  •  
    Nov 26 12:02 PM
    Idiot!


    On Nov 26 10:05 AM James Wilson wrote:

    > If you wanted to crash a countrys economy to lower wages, break big
    > unions and take over a government how would you do it ?
    >
    > Have a quite COUP during an election ? check
    > Scare the people with Terrorist ? check
    > Bankrupt most programs? check
    > Turn Government programs over to lobbyist ? check
    > Transfer Billions to your friends? check
    > Buy 99,000 ac in Paraguay to hide on if plan fails? check
    > Freeze Credit ? check
    > Bankrupt the treasury ? check
    > Have Private Military ready ? check
    > Have Patriot Laws past ? check
    > Have large holding facilities? check FEMA holding facilities
    >
    > Feel free to add to the list. Also check and see if Bush has done
    > the samer thing since 2000. You might be amazed.
    >
    > Holding my breath till Jan and praying he actually leaves office.
    >
    Reply | Link to Comment
  •  
    Nov 26 12:56 PM
    I assume you have been allowed by Citigroup to personally audit every loan you call 'worthless'? How you can attempt to pass this trash off as fact is astounding.
    Reply | Link to Comment
  •  
    Nov 27 12:21 PM
    These guys from Zachs, definitately don't have anything in common with the nuts function this company delivers on a global basis.
    The deal looks bad indeed for the taxpayer. Their credit status won't improve by this, nor does their real estate values go up. All true.

    But consider this; people took risks, banks took risks, and the only one that had to regulate this is government together with independant (SEC)bank auditors. The latter ones failed big time.

    Now, about your rant about the government not making any money on the CitiGroup deal. You haven't looked into the deal. Because they receive $7 billion in preferred stock @ ~8 percent interest annually. Next to that, they receive warrants for acquiring 4.9 percent of common stock when its hit $10.50. That is very attractive for the taxpayer. Especially when you consider, that this banking giant is the motor of global finance and restructuring its cost base to be ready for the next century in finance.

    So basically what Zach's is saying, is based on a rant against CitiGroup.
    Please analyse your market some better next time. This downgrades your company on my list instantly. I hope also with the others in the community.

    In regard to the auto-industry, please; what is wrong with you people. The automakers except for Ford, where already on the brink of collapse, after 20 years of mismanagement. Their union contracts and social security obligations are insane for this type of market. How about competitiveness? We are the big tree, and you just save our ass Congress...right. That is taxpayer dillusion.
    I say, let the strong and competent survive over the weak and incompetent corporations. Social interventionalism must be used to reform the health care system on a government level. Not corporate wise.

    brgds.
    Reply | Link to Comment
  •  
    Nov 30 12:42 AM
    I have to join in frustration with CITI, if not exactly for the same reasons. How can a company which has credit card customers paying 20% interest month after month lose money? It is rediculous. Anybody with access to money at what these banks pay for it, could make this math work.
    On the other hand, CITI is a victim of the real estate industry corruption that will take years to undo. Appraisals have to be accurate. Credit requirements need to be strict. Change of possession of a loan needs to be banned. All of this placed on the industry now, creates more value deflation.
    For the taxpayers.. I say we invade Delaware and flush all the banks out of it. And constrain interest rates on cards. Unfortunately, paying with cash is not only unsafe, but not practical. An economy demands a currency, and cards are currency now. It is not a free competitive market, government can correct market failures and rate gouging here.
    Reply | Link to Comment
  •  
    Dec 01 04:14 PM
    WHAT are you smoking?


    On Nov 26 10:05 AM James Wilson wrote:

    > If you wanted to crash a countrys economy to lower wages, break big
    > unions and take over a government how would you do it ?
    >
    > Have a quite COUP during an election ? check
    > Scare the people with Terrorist ? check
    > Bankrupt most programs? check
    > Turn Government programs over to lobbyist ? check
    > Transfer Billions to your friends? check
    > Buy 99,000 ac in Paraguay to hide on if plan fails? check
    > Freeze Credit ? check
    > Bankrupt the treasury ? check
    > Have Private Military ready ? check
    > Have Patriot Laws past ? check
    > Have large holding facilities? check FEMA holding facilities
    >
    > Feel free to add to the list. Also check and see if Bush has done
    > the samer thing since 2000. You might be amazed.
    >
    > Holding my breath till Jan and praying he actually leaves office.
    >
    Reply | Link to Comment
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