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Beyond the Citi Limits
by Jeffrey Cane
Nov 1 2007
Nov 1 2007
Citigroup's stock slides on renewed subprime worries.
Fears that Citigroup might have to take additional write-downs on investments tied to subprime mortgages escalated today, driving its stock price down to a four-year low.
Shares of Citigroup are down more than 7 percent in midmorning trading, to $38.42.
Meredith Whitney, an analyst with CIBC World Markets, said in a note to clients on Wednesday that Citigroup might need to cut its dividend, now 54 cents a share, or sell some assets in order to preserve capital.
"Catch-22 will apply here as selling assets will limit Citigroup's ability to grow earnings, leading us to believe there will be a combined sale and capital raise," she wrote.
As a result, Citigroup's share price could fall to the low $30's, she continued, lowering her rating to "sector underperform" from "sector perform.''
If her analysis is correct, Eric Dash writes in the New York Times, "the findings could be yet another blow to Citigroup's chairman and chief executive, Charles O. Prince III, who has endured a barrage of criticism in the last few years for his failure to control costs and improve results."
The research note came as the Financial Times and the Wall Street Journal reported that two Citigroup executives have been forced out as a result of the bank's subprime losses. Michael Raynes, who ran structured credit, and Nestor Dominguez, the co-chief of collateralized debt obligations, have left the bank.
Dash, in a separate article, reports that expectations for a $75 billion superfund being formed by the big banks have diminished greatly. Citigroup is by far the largest participant and has the most to gain if the fund works.
The fund, or as the banks are calling it, the Master Liquidity Enhancement Conduit, will not rescue the bank's structured investment vehicles, or S.I.V.'s, that have troubled debt, as some had thought at first. Instead, the Times says, the fund is aimed only at an orderly unwinding of the S.I.V.'s
The fund "is more a towline to get them to the scrap yard," Lou Crandall, chief economist at Wrightson ICAP, told the Times.
Shares of Citigroup are down more than 7 percent in midmorning trading, to $38.42.
Meredith Whitney, an analyst with CIBC World Markets, said in a note to clients on Wednesday that Citigroup might need to cut its dividend, now 54 cents a share, or sell some assets in order to preserve capital.
"Catch-22 will apply here as selling assets will limit Citigroup's ability to grow earnings, leading us to believe there will be a combined sale and capital raise," she wrote.
As a result, Citigroup's share price could fall to the low $30's, she continued, lowering her rating to "sector underperform" from "sector perform.''
If her analysis is correct, Eric Dash writes in the New York Times, "the findings could be yet another blow to Citigroup's chairman and chief executive, Charles O. Prince III, who has endured a barrage of criticism in the last few years for his failure to control costs and improve results."
The research note came as the Financial Times and the Wall Street Journal reported that two Citigroup executives have been forced out as a result of the bank's subprime losses. Michael Raynes, who ran structured credit, and Nestor Dominguez, the co-chief of collateralized debt obligations, have left the bank.
Dash, in a separate article, reports that expectations for a $75 billion superfund being formed by the big banks have diminished greatly. Citigroup is by far the largest participant and has the most to gain if the fund works.
The fund, or as the banks are calling it, the Master Liquidity Enhancement Conduit, will not rescue the bank's structured investment vehicles, or S.I.V.'s, that have troubled debt, as some had thought at first. Instead, the Times says, the fund is aimed only at an orderly unwinding of the S.I.V.'s
The fund "is more a towline to get them to the scrap yard," Lou Crandall, chief economist at Wrightson ICAP, told the Times.
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