Citigroup Management Looks Overmatched

From the WSJ:

“The selloff in Citigroup shares has led executives to start laying out possible contingency plans. In addition to pondering a move to sell the entire company to another bank, executives have started exploring the possibility of selling off parts of the firm, including the Smith Barney retail brokerage, the global credit-card division and the transaction-services unit, which is one of Citigroup’s most lucrative and fast-growing businesses, the people said.”

Sound familiar? Lehman Brothers was stunned by their tremendous stock price decline and considered selling off Neuberger Berman, its most prized and valuable unit. Citi executives are obviously clueless right now. After all, their CEO is a former hedge fund manager and has no banking experience whatsoever. Conversely, the top brass at the other major banks are all seasoned bankers.

Selling off their valuable assets to raise money to burn in their worst units is not a good strategy. It is hard enough to operate Citi if you are a great CEO, due to its immense size, but the situation nowadays only further reinforces the notion that Citi should be broken up. Nobody with a clear head would argue that Citi’s breakup value is worth less than the current $4.71 share quote. That said, when management looks incapable and nobody can really get a clear view of what exactly Citi’s financial picture looks like with everything lumped together, it is hard to have confidence that the underlying value of the firm’s assets will be realized anytime soon. Hence, people just sell the stock.

Full Disclosure: No position in Citigroup at the time of writing, but positions may change at any time

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2 Thoughts on “Citigroup Management Looks Overmatched

  1. shepherd on November 21, 2008 at 9:05 AM said:


    Something is puzzling me in this sentence: “The selloff in Citigroup shares has led executives to start laying out possible contingency plans.”

    I’m not sure if I understand why a fall in stock price should by itself cause a bank to consider selling units. Is the relationship merely correlative, i.e. the decline in stock price reflects the shakiness of the business? Or is there something directly related to the stock price itself that causes the bank to have problems–perhaps a run on assets?

  2. Chad Brand on November 21, 2008 at 9:19 AM said:


    Stock price itself should have no bearing whatsoever on whether a bank can operate normally or not. However, in today’s world that is one of the biggest problems we face.

    Not only does it cause panic which leads to a run on a bank’s assets, as you suggested, but now the ratings agencies (clueless as they are) take stock price into consideration when rating a firm’s creditworthiness. The low stock price alone doesn’t hurt the bank, but a credit downgrade due in part to the stock price level sure would.

    That is why we have seen companies with adequate capital ratios either go under or be forced to sell themselves. It’s insane, but it’s the reality of what is going on.

    The idea that Citi is somehow out of money and cannot meet its obligations is silly. Now, the fact that they have to raise more money and much of that capital is senior to the equity does mean the stock should go down. But a low stock price should not force the company to make bold moves (asset sales) just to disprove rumors.

    More disclosures would certainly help, though, in terms of their financial situation. But the company has been silent, which implies the rumors are true. Don’t just say they aren’t true, show us why they aren’t true.

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