Fire Sale At Citigroup?

In what seems to be a nonstop endeavor, Citigroup is once again raising capital by issuing stock and selling assets. It's hard to keep up now because there seems to be a new deal every week.

On May 7th the announcement was Citi Selling $2 Billion in Preferred Stock.

Citigroup(C) is selling $2 billion worth of preferred stock, the latest of several recent capital raising efforts from the troubled financial titan as it shores up its balance sheet amid mounting losses.

The bank, which lost $5.1 billion in the first quarter and wrote down $12 billion in securities tied to debt, said in a Securities and Exchange Commission filing late Tuesday that it was selling 80 million shares of perpetual preferred stock for $25 a share. The offering comes after a $3 billion offering of common stock and an earlier $4 billion preferred offering since the bank reported results last month.

Since December, Citi has raised more than $30 billion in new capital through various transactions, most of it being convertible preferred securities.

Not including the money to be raised in the most recent offering, Citi's capital ratio had risen to approximately 8.5% from 7.7%.

Not only is Citi selling stock, but it's also selling assets. Just last week, Citi and partner State Street(STT) sold its CitiStreet joint venture to ING(ING) as it tries desperately to pump up its balance sheet.

The capital raising also comes at a time when Citi is struggling with unsuccessful hedge strategies like Falcon Strategies Two B, a hedge fund marketed by Citigroup Alternative Investments. The fund lost 53% of its value in the fourth quarter of 2007, and is now down about 75% overall, resulting in an investor lawsuit over the fund.

Citi also took a $202 million writedown in the first quarter related to assets in CEO Vikram Pandit's former Old Lane hedge fund. The bank bought the fund for $800 million.

Citigroup Ponders $400 Billion Asset Sales

Friday May 9th: Citigroup mulls up to $400 bln asset sales.

Citigroup Inc will present plans to sell as much as $400 billion of extraneous assets when it meets with investors and analysts on Friday, a person familiar with the situation said.

The sales could amount to nearly 20 percent of Citi's current assets, and according to the Financial Times, which first reported the story on Thursday, would take place over several years.

Although Citi has said previously that it plans to shed assets to improve its capital position, the magnitude of the potential sales struck some analysts as worrisome.

"The only reason you'd sell off that many assets is you have a lot more losses coming than you originally thought," said Jim Huguet, co-chief executive at fund manager Great Companies LLC, which does not own Citi shares.

My Comment: The amazing thing is Citigroup clinging to a dividend it cannot afford.

Since late last year, Citi has recorded more than $45 billion of writedowns and credit losses, raised more than $40 billion of new capital including $2 billion of preferred shares this week, and slashed its dividend 41 percent.

Precisely which non-core assets are for sale is unclear, but analysts speculated that consumer finance businesses in the United States, Japan, Mexico, and Germany are possible.

Pandit and other executives are expected to also fend off calls for a break-up on Friday when the company offers a four-hour presentation to investors and analysts. They are instead expected to tout Citi's combination of consumer and institutional businesses, and recommend selling operations and assets outside those main areas.

My Comment: Exactly what is a sale of 20% of the company other than a breakup?

Citi's "Tier 1" capital ratio -- a measure of the bank's capital strength -- is above 8.6 percent, based on March balance sheet figures and recent capital raising efforts.

That's above the bank's internal targets, but the fact that Citi continues to raise equity, having issued perpetual preferred securities this week, makes some analysts wonder whether future writedowns will continue to be large.

My Comment: Actions speak louder than words.

Another highlight of the meeting will be plans to slash as much as $15 billion of operating expenses. Last year, Citi's costs totaled more than $61 billion.

The bank has announced 13,200 job cuts in 2008, though analysts say tens of thousands of further cuts may be needed. The bank ended March with 369,000 employees.

My Comment: Firings have just begun, and not just at Citigroup.

Flashback November 5, 2007

Chuck Prince Resigns : Replaced by a Parrot.

My comment: Plans or not, Citigroup is going to have to reduce that dividend. And yes, its capital has been called into question. Please see Question of Solvency at Citigroup for more details.

My comment: Citigroup will not survive in its current state.

My comment: Write-downs have barely begun, at financial institutions in general, not just Citigroup.

That Citigroup is considering selling off 20% of the company after a half dozen capital raising efforts shows just how desperate things are at Citigroup. Just imagine how much better off it would be had it done this 18 months ago, or even 8 months ago. Now the price of those assets will be marked down significantly.

Is this it? Probably not. Wake me up when Citigroup is forced to slash its dividend and there are no bidders for assets it needs to sell to survive.

This is not THE fire sale, this is a warm-up event.

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