Citigroup's Cannibalization Policy

Yahoo!News is reporting Citigroup sells Japan HQ to Morgan Stanley.

Citigroup (C), which has been raising funds since taking a huge hit from the U.S. subprime mortgage meltdown, has sold its Japan headquarters to rival Morgan Stanley (MS.N) in a deal reportedly worth US$445 million.

Citigroup reported last month a record quarterly loss and wrote off $18.1 billion for investments damaged by a downturn in the U.S. housing market and a subsequent credit crunch.

The bank said it planned to raise $14.5 billion, including from the Government of Singapore Investment Corp Pte (GIC) and the Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal, and has also floated the sale of peripheral businesses, such as a Brazilian credit card operation.

Citigroup said in a statement on Tuesday that it had completed the sale-and-lease back deal of the Citigroup Center in Tokyo's Shinagawa district as part of efforts to improve Citibank Japan's balance sheet and cut risk of holding property assets.

Neither Citigroup nor Morgan Stanley disclosed the financial terms of the deal, but the Nikkei business daily said the transaction was worth 48 billion yen ($445 million).

Citigroup Forced To Sell Assets

Some thought I was off base in Citigroup Fighting For Its Financial Life on November 5th, and Question of Solvency at Citigroup on November 1st, but here we are.

Citigroup is not considering these actions because it wants to, it is so capital impaired that it is forced to.

In 2007, the Japanese real estate rose for the first time in 19 years! There could not be a worse time to be divesting of assets in Japan. Clearly Citigroup needs to raise more cash, most likely in preparation for still more writedowns.

Citigroup May Sell Brazil Card Unit

Reuters is reporting Citigroup may raise $616 mln with Brazil card unit.

Citigroup Inc may raise 1.08 billion reais ($616.1 million) with the sale of a stake in its Brazilian credit card unit as the largest U.S. bank seeks funds to shore up its balance sheet.

Citigroup plans to sell 41.13 million shares of Redecard, according to a prospectus of the sale, filed on Tuesday. The shares fell 6.9 percent to 26.3 reais in late afternoon trading.

Citigroup, Itau Holding Financeira and Unibanco filed to sell shares of Redecard in a secondary offering, though the Brazilian banks did not disclose the number of shares they plan to sell.

Cost of Capital "Ratchets Up"

Inquiring minds may wish to review Cost of Capital "Ratchets Up" at Citigroup and Merrill.

For existing Citigroup/Merrill shareholders, should such a further capital raise occur at a lower stock price, their dilution will be significantly compounded because of the ratchet. ...

Like it or not, Citigroup is going to have to start selling off business units to raise more capital. By the time all is said and done, Citigroup is likely to be a mere shadow of its former self.

A New World Order In Banking

Bloomberg is reporting ICBC Deposes Citigroup as Chinese Banks Rule in New World Order.

There's a new world order for banks, and the Chinese, for the first time, are the biggest, with a market capitalization that has made perennial No. 1 Citigroup Inc. a distant also-ran behind Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd.

It was just a year ago that Citigroup was the world's biggest bank by market value, and ICBC was beginning its fourth month as a publicly traded company.

Today, Beijing-based ICBC is the largest financial-services firm and Citigroup has tumbled to seventh on growing concern that the 196-year-old company is no match for a bank based in the world's fastest-growing major economy that has more customers than the combined populations of France, Spain and the U.K.

"As far as the financial industry is concerned, in August you went from one world to another almost overnight, especially in the U.S.," said Yergin, whose book "The Prize: The Epic Quest for Oil, Money & Power" won the Pulitzer Prize in 1992.

UBS, the biggest European bank by assets, declined to 16th place from eighth after posting the biggest ever loss by a bank in the fourth quarter. Morgan Stanley and Barclays Plc fell out of the top 20, and Washington-based Fannie Mae, the largest U.S. mortgage finance company, and Freddie Mac of McLean, Virginia, sunk furthest. Goldman Sachs Group Inc. is the highest-ranking securities firm, and places 15th in the world among financial- services companies.

The rally in Chinese banks has also drawn comparisons with the Japanese stock market bubble of the 1980s and subsequent collapse. Tokyo-based Nomura Holdings Inc.'s market value climbed in 1987 to $76 billion, the largest of any financial institution, and 18 times bigger than New York-based Merrill Lynch & Co., the largest U.S. brokerage. The biggest Japanese bank is now Mitsubishi UFJ Financial Group Inc., placing 10th in the world.

Loans outstanding in China are equivalent to 111 percent of gross domestic product, a larger ratio than in Japan during the bubble era, KBC Securities Japan analyst Kristine Li wrote in a Jan. 15 report to clients. Market values relative to loans outstanding jumped to 64 percent in China, compared with a maximum 40 percent in Japan before shares tumbled, she said.

"It's a well-known secret that the Chinese banks have a bad loan problem,'' said Whitehead of Boston University. "But part of the presumption among investors may be that the Chinese government will step in if something bad happens.''

The following is a table of the world's biggest banks by market capitalization in current U.S. dollar terms, showing their rank at the end of January 2008, 2007 and 2003.

1/31/08                       Mkt cap ($bln) 1/31/07    1/31/03

1    ICBC                     277.514        4          NA
2    Bank of America          195.933        2          2
3    HSBC Holdings            176.788        3          3
4    China Construction       165.234        7          NA
5    Bank of China            165.087        6          NA

6    JPMorgan Chase           159.615        5          9
7    Citigroup                140.698        1          1
8    Wells Fargo              112.365        11         4
9    Banco Santander          109.862        12         23
10   Mitsubishi UFJ Financial 105.412        9          22

11   ABN Amro+                103.643        34         29
12   UniCredit                 97.591        15         32
13   Intesa SanPaolo           89.954        16         46
14   BNP Paribas               88.487        14         15
15   Goldman Sachs             87.602        18         18

16   UBS                       84.878        8          7
17   BBVA                      78.302        19         25
18   Sberbank                  77.713        31         109
19   Royal Bank of Scotland    76.023        10         6
20   Wachovia                  75.401        13         8

Every quarter look for Citigroup to keep cannibalizing itself to stay alive. If credit card losses get steep enough, it may be forced to sell its entire North American card unit. Nothing can presumed to be "off the table" at this point.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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