Possible C plan

Discussion in 'Wall St. News' started by slowdown, Nov 23, 2008.

  1. Goldman, Morgan Stanley May Want Citigroup, CreditSights Says

    Nov. 23 (Bloomberg) -- A purchase of Citigroup Inc. would “significantly” add to Goldman Sachs Group Inc. or Morgan Stanley’s earnings as long as the U.S. government absorbed losses on the embattled bank’s assets, according CreditSights Inc.

    Buying Citigroup “would be significantly accretive to Goldman and Morgan Stanley’s earnings as the potential buyer would be acquiring a significant future earnings stream for a relatively low price,” David Hendler, an analyst at CreditSights in New York, wrote in a report yesterday. The buyer “would probably receive government support if it was needed.”

    Led by Chief Executive Officer Vikram Pandit, Citigroup lost 60 percent of its market value last week as investor confidence in the New York-based company’s prospects faltered after four consecutive quarterly losses. The share-decline may rattle Citigroup’s customers, counterparties and employees, threatening the operations of the second-biggest U.S. bank by assets, according to Hendler’s report.

    “We sense that Citi’s board will also recognize the difficult chain of events which can be brought about by its low stock price, and prefer to take action in the next few days or weeks,” Hendler wrote.

    Pandit, 51, told employees on a Nov. 21 conference call that he doesn’t plan to break up the company. He and Chief Financial Officer Gary Crittenden said they don’t expect to sell the Smith Barney brokerage unit, two people who listened to the call said at the time. Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons, met the same day to discuss the bank’s options.

    Citigroup issued a statement last week saying the company has “a very strong capital and liquidity position and a unique global franchise.” Spokeswoman Christina Pretto didn’t return phone calls seeking comment today.

    Debt-Market Funding

    Goldman Sachs and Morgan Stanley were the two biggest U.S. securities firms before converting to bank holding companies in September. They took the step after smaller rival Lehman Brothers Holdings Inc. was forced into bankruptcy, undermining investors’ faith in investment banks that rely on the constricted debt markets for financing. All three firms are based in New York.

    Goldman and Morgan Stanley have said they would consider acquisitions to help build their deposit bases. Spokespeople for both companies declined to comment on whether they would consider buying Citigroup.

    Citigroup’s $2 trillion of assets would have to be booked by any acquirer at current market values, which could translate into about $100 billion of writedowns, CreditSights estimated. To help facilitate a transaction, the Federal Deposit Insurance Corp. could provide loan-loss support or the U.S. Treasury could contribute money from the $700 billion Troubled Asset Relief Program passed by Congress in October, the report said.


    Even without an acquisition, the government could intervene if Citigroup’s depositors start to withdraw money because the company would be considered an institution whose failure could threaten the entire financial system, the report said.

    “Government intervention could take place under the purview of one or more of several federal departments, including the Treasury department, TARP program, the Federal Reserve, or the FDIC,” Hendler wrote.

    Citigroup’s debt remains on review for downgrade by both Moody’s Investors Service and Standard & Poor’s. Moody’s rates Citigroup’s senior unsecured debt Aa3, while S&P has an AA- rating. A downgrade to A1 by Moody’s or to A+ by S&P is possible as the bank’s falling stock price could be deemed to hamper the company’s “financial flexibility,” the report said.

    A single-A rating at the parent-company level should be manageable as long as the company’s banking subsidiaries maintain double-A ratings, CreditSights said. JPMorgan Chase & Co., now the biggest U.S. bank by assets, managed to endure with single-A ratings earlier in the decade, the report notes.

    “That said, Citi does not disclose what additional collateral it might need to post if it faced a downgrade to high- A territory, so we do not have any hard numbers as to whether a downgrade would cause a sizeable collateral call,” the report said.

  2. If GS buys C, could GS call the subsidiary the "C - section?"
  3. If GS buys C they can call the new company........

    "Sach's in the Citi" :D
  4. Excellent!