Citigroup shares drop

Discussion in 'Wall St. News' started by S2007S, Nov 1, 2007.

  1. S2007S


    How wallstreet stays in rally mode these last 6-8 months amazes me when news like this should be of great concern.....I dont know why anybody should think this market should move higher......


    Citigroup shares drop as dividend is put in doubt
    Analyst see need for cutting payout or sell assets amid capital shortfall
    By John Spence, MarketWatch
    Last Update: 12:04 PM ET Nov 1, 2007

    NEW YORK (MarketWatch) -- Citigroup shares tumbled more than 6% in midday trading Thursday amid new concerns that the financial services conglomerate may not be able to support its hefty dividend payout.
    In the near term, may have to raise more than $30 billion by either selling off assets, slashing its dividend, raising capital or resorting to a mix of these measures, analysts at CIBC World Markets said.

    At last check, Citigroup's stock, part of the Dow Jones Industrial Average, fell $2.49, or 6.02% to $38.87 as the Dow itself also notched a 200-point decline.
    Citigroup on Wednesday was downgraded to sector underperformer from sector performer by analysts Meredith Whitney and Carla Krawiec, who cited worries about its dividend payments.
    "Since 2006, Citigroup has made $26 billion in acquisitions, taken over $6 billion in recent charges, and increased its dividend against a backdrop off almost no net income growth," the analysts wrote in their research note.
    They said the Wall Street giant's dilemma is that selling assets will constrain Citigroup's power to generate profit growth, meaning the most likely outcome is a combination of sales and raising capital. They pegged Citigroup's tangible capital at only 2.8%, below the level of its peers.
    "While not part of our immediate thesis, higher credit losses and further disruption in the [structured investment vehicle] market would only exacerbate our thesis of capital pressures," the analysts wrote.
    CIBC's analysts cut their 2008 earnings forecast to $4.20 a share, vs. $4.55 previously, and reduced the company's 2009 profit outlook to $4.55 a share vs. their previous projection of $4.95 a share.
    "Based upon our thesis that over the near-term Citigroup will be forced to sell assets, raise capital or cut its dividend to shore up its capital ratios, we believe the stock will be under significant pressure and could trade into the low $30s," according to CIBC.
    'Liquid and well-capitalized'
    Richard Bove, an analyst with Punk Ziegel & Co., doesn't dispute that Citigroup has issues, but solvency is not one of them, he said. Citi's had a profit of $13.6 billion and it had net free cash flow of $18 billion through the first nine months of 2007. Bove also said Citi has $240.8 billion in liquid trading account assets that can be used for liquidity.
    "These numbers indicate that this bank is both liquid and well-capitalized," Bove wrote. "At the end of the third quarter, Citigroup posted $2.355 trillion in assets. This was more than any other American bank and possibly more than any bank in the world."
    Credit agencies rate Citi's debt in a range between A and AA. That's "high among its peers," Bove wrote. "Plus, the bank is considered to be well capitalized by the regulators."
    Even if Citigroup were to add the $70 billion in outstanding assets in structured-investment vehicles to its balance sheet and write them off, that would be offset by the $133.8 billion in assets it added during the third quarter alone, Bove said. CDO fallout
    Citigroup ranks second behind Merrill Lynch & Co.
    MER 62.91, -3.11, -4.7%) among underwriters for collateralized debt obligations since 2005, when the asset class began its growth. Citigroup has underwritten 183 CDOs valued at a combined $101 billion -- about 9.2% of the entire market, according to Thomson Financial.
    Meanwhile, the backlash from Citigroup's difficult third quarter claimed two more casualties in its investment bank. The Wall Street Journal reported that Michael Raynes, head of structured credit, and Nestor Dominguez, co-head of CDOs, have departed.
    Citigroup's third-quarter profit fell 57% after accounting for previously announced write-downs for bad loans and other credit issues. The company said third-quarter credit costs increased $2.98 billion, mostly due to credit losses of $780 million and a net charge of $2.24 billion to increase loan-loss reserves.
    Other large Wall Street investment banks have also been hit by the global credit crunch. Merrill forced out Stan O'Neal as chief executive earlier this week after the company was forced to write down about $8 billion of mortgage and CDO assets. The company reported a third-quarter loss of $2.2 billion.
  2. Um not a big deal

    Didnt even bother to read it in depth since I knew beforehand the market will keep rising later as if nothing happened.

    This is actually good news because it increases the odds of more rate cuts.
  3. Excuse me, but didn't you just call (yesterday) for the Dow to get to 15,000 by mid-December?

  4. The FED is now up $hit creek without a paddle because of this kind of market mentality. Ok whenever bad news comes out and the market has a bad day the FED will be there to bail everyone out. After all that's what their there for./sarcasm
  5. S2007S


    Landis, you should know by now that I am bearish on this market. I was being sarcastic when I wrote that since the market only knows one direction, today its selling off on Citigroup news and XOM earnings, should the bulls worry? I dont think so, yesterday every talking head was talking about a MELT UP into the end of 2007, that has me thinking that we will probably have a strong run into the end of 2007 then maybe in early 2008 the fun begins....I think the DOW sees a 400-500 point down day today.....lets see what happens.
  6. But that is the job of the fed. To help move the economy along by cutting rates during stagnation and other problems.
  7. Bob111


    just cut the bonuses.should be enough :)
  8. no more rowshan reports
  9. The only time to be bearish about the market is when the market is down. If you want to make $ trading, the trend is your friend. Never let your beliefs interfere with reality.
  10. :confused:

    I have a difficult time following you since you post between 20-40 times per day on ET and never seem to be TRADING.

    My apologies.
    #10     Nov 1, 2007