Wednesday, April 7, 2010

"Citigroup: The Case for Continued Growth" (C)

Bloomberg does a pretty good job on this. From BusinessWeek:

Shares in the shaken financial services giant are up nearly 29% this year. Some analysts expect further gains

Anyone in his right mind might find it foolish to peg the stock market's continued run on a single company, let alone one that was considered Wall Street poison little more than a year ago. But consider that the financial sector provided much of the fuel for the 4.87% gain in the Standard & Poor's 500-stock index during the first quarter of 2010. Citigroup (C) has helped lead the sector's charge.

That's right: Citigroup, the global franchise that was on the verge of trading as a penny stock early in March 2009. The stock is trading at 4.26, after having gained 25% in the first quarter, vs. a 10.8% gain by the 79 financial stocks in the S&P 500 index. Still, Citigroup trades at less than one-tenth its value as of Aug. 8, 2007, when it closed at 49.49 a share.

Citigroup has been able to drive the financial sector's gains as much as it has only because its market capitalization hasn't plunged in concert with the share price. In fact, at $122.02 billion on April 6, it's down just 17% from $147.04 billion on Dec. 31, 2007, when the shares closed at $29.44. But the reason for Citi's robust market cap isn't cause for celebration among longtime shareholders, who have seen extreme dilution in the value of their stock as the company went on a tear issuing shares during 2009, increasing the number of common shares outstanding more than fivefold to 28.48 billion. That compares to 5.45 billion shares outstanding at the end of 2008, and 4.99 billion at the end of 2007.

There are two key reasons for caution toward Citigroup right now, despite signs of an improving economy. First, investors are worried that the U.S. Treasury Dept.'s plan to start paring its 27% stake in the company—it owns 7.7 billion shares—could put further pressure on the share price. (Institutional investors have kept away from the stock out of concern that the government's stake would limit management's freedom to make decisions.) There's also concern that the company may incur further losses by selling such impaired assets as subprime and Alt-A mortgages and auction rate securities from its Special Asset Pool at deep discounts to face value.

The Treasury Dept. announced on Mar. 29 that it would start selling its Citigroup stake with Morgan Stanley (MS) serving as sales agent. The government wants to divest its interest in Citi by the end of September 2011. If the selling puts a slow trickle of shares into the market over time via a preset trading plan, that would relieve fears of a discounted, big-block offering and could prompt institutions that have avoided the stock to start buying shares, analyst Jeffrey Harte at Sandler O'Neill & Partners wrote in a Mar. 25 research note.

2009 Citi offering repaid $20 billion

The trading volume of Citi shares in recent months provides some evidence that the Treasury Dept. could sell its shares without causing much market disruption, Harte said. If Citi's recent average daily trading volume were to hold at about 500 million shares and Treasury shares were to account for roughly 12% of average daily volume, the government would be able to sell the entire stake by the close of its fiscal year ending Sept. 30, 2010, Harte wrote. Since the target completion date is a full year later, government sales are likely to be even less disruptive....MUCH MORE

"AN INTERVIEW WITH BRUCE BERKOWITZ: Why the Fairholme founder finds AIG, Bank of America and Citi very attractive now." (AIG; BAC; C)

"Sandler O’Neill on Citigroup: Shares Underowned by Institutions" (C)

High Praise for Bloomberg's Citigroup Story (C)

"Soros’ Citigroup Bet: Is He in the Money Yet?" (C)

"Citigroup CEO Pandit Expected to Say Citicorp Could Earn $20 Billion By 2012" (C)

"Citigroup's Stock Likely to Keep Climbing: Bove" (C)

Who Scores Big on a Move in Citigroup? John Paulson, Bruce Berkowitz, George Soros; the usual suspects

Citi Up 7% on Treasury’s Exit: Should You Buy? (C)

"Citigroup: ‘Shares no Longer Toxic?’ and Smart Money Buying?" (C; AIG; FNM; FRE)