Citi's Slide Deepens As Investors Bail Out
Anxious investors pushed Citigroup Inc. shares into a deeper nosedive, putting even more pressure on Chief Executive Vikram Pandit to shore up confidence in the struggling bank.
Wednesday's stock-price plunge of 23% was the steepest percentage decline ever for Citigroup, which during the past three days has lost a third of its stock-market value. Citigroup now stands as the fifth-largest U.S.-based bank; U.S. Bancorp, the new No. 4, has one-ninth the assets of Citigroup.
Investors were rattled by the New York company's announcement that it will buy the last $17.4 billion in assets held by its structured investment vehicles, the off-balance-sheet vehicles known as SIVs that were among the first mortgage-related assets to blow up when the credit crunch hit last year. The purchase will result in a $1.1 billion write-down.
One Citigroup official expressed relief that the company is finally ridding itself of SIVs, which had hung over it like 'an albatross.'
Also fueling the decline was a steeper fourth-quarter loss projection by David Trone, an analyst at Fox-Pitt, Kelton. 'The specter of Citi's problem asset levels . . . could continue to hinder investor confidence in the story,' Mr. Trone wrote to clients.
For many investors, the daily drumbeat of bad news is causing even more pessimism about Citigroup's exposure to risky assets and the difficulties Mr. Pandit faces in turning around the global financial giant he took over last December.
Citigroup executives say the bank has ample capital and funding and will be able to absorb waves of loan defaults for which banks of all sizes around the world are bracing. They also have expressed frustration over the sliding stock price, but maintain it doesn't threaten the company's viability.
Still, this month's 53% stock-price drop could prompt some of Citigroup's trading partners to start 'pulling away,' says Roger Lister, chief credit offer of credit-rating firm DBRS. In 4 p.m. New York Stock Exchange composite trading, Citigroup shares fell $1.96 to $6.40, their lowest closing value in more than 13 1/2 years.
In another sign of rising jitters, the annual cost of insuring $10 million of Citigroup debt for five years ballooned Wednesday to about $342,000, up by more than $100,000 from the previous day, according to CMA DataVision. That is far below the cost of insuring Lehman Brothers Holdings Inc. debt was shortly before the securities firm plunged into bankruptcy court in mid-September.
The U.S. government has a huge stake in seeing Citigroup right itself, given the $25 billion infusion the bank got as part of the Troubled Asset Relief Program. But it isn't clear what, if any, additional steps federal officials might be willing to take.
That question is haunting the company's stock. 'Fixed-income people are less worried because they know the support will be there,' Mr. Lister says. 'For equity investors, it will be there, but at what cost?' Stock investors seem increasingly resigned to the possibility that their stakes will be heavily diluted.
Tanya Azarchs, a credit analyst at Standard & Poor's, says the federal government has made a 'broad expression of support.' At the same time, though, Citigroup is struggling with intensifying problems. 'As we're watching the deterioration here of the market . . . it makes us think that the mark-to-market write-offs are not over yet,' she adds.
Among scenarios that seemed implausible just a few months ago, speculation is growing that Citi will be forced to seek a merger with a stronger financial institution. Citi officials have said that isn't necessary. |
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