As we watch Citigroup (NYSE:C) continue to trade above 4.20 a share, I have to ask investors what they are driving this stock price up on? Certainly with the recent news that the government would like to divest itself of its shares, the price per share of this equity theoretically should drop. Also amid all the recent speculation, we are seeing bits and pieces of a massive fraud and lack of competence among the Mortgage and Banking industries with Citigroup smack dab in the middle of it all.
Recent information from a former executive with Citigroup suggests management ignored an internal warning that most of the mortgages it was selling were defective. This former executive testified to this on Wednesday. Other former executives at Citigroup and New Century Financial told the Financial Crisis Inquiry Commission on Wednesday how their firms contributed to the creation and selling of subprime mortgages and mortgage backed securities that created and sustained the housing bubble prior to its implosion. Among the testimony were revelations that exposed some very serious allegations. One of which was Richard Bowen, who was business chief underwriter during his time at Citigroup, testifying that he warned executive committee chairman Robert Rubin about the destructive business practices occurring in the company’s mortgage arm. Bowen also stated he discovered in 2006 that “60 percent of the mortgages bought and resold by the company were defective,” meaning they were not up to Citigroup minimum standards or guidelines. When asked how Rubin responded, Bowen replied, “I received a very brief phone call from a general counsel within the company. He said they were doing background research and didn’t need to talk to me.” Astonishing revelation if true and very revealing of the extent of corporate greed at Citigroup at the time.
Mr. Rubin and former Citigroup chief executive officer Charles Prince will testify to the commission on Thursday to give their side of the story. Other witnesses deflected responsibility for the credit boom and subsequent collapse that eventually caused a global recession. Patricia Lindsay defended her role at New Century, and blamed others when Commission member John Thompson asked her, “Is it fair to say that the risk management function at New Century was window dressing to perpetrate fraud?” Lindsay’s response was as follows “The department that I served in was in charge of fraud detection and prevention, so I like to think we did a pretty good job, As far as the rest of the business unit goes, as far as producing loans that borrowers couldn’t afford, I think it was a mess.” One has to ask how such intelligent people, hired for their credentials and expertise acted so irresponsibly and can actually attempt to deny any knowledge of the fraudulent practices they rubber stamped with approval.
Again, I have to come back to what exactly is going on with Citigroup stock and its apparently manipulated support above 4.00 dollars. With so much still wrong in the mortgage and real estate markets, massive dilution of shares, and continuing exposure to toxic mortgage assets on their books, I find it very deceptive that Citigroup stock is being propped up as it is right now. There is no doubt Citigroup is attempting to straighten itself out, but as an investment right now it leaves a bad taste in my mouth at this time and this price. Attempts to regulate and re-work the financial markets, credit, mortgage lending and Banking practices have been met with strong resistance and back room brokering to maintain loose regulation overall; meanwhile applying some band aids to give the appearance of a cleanup. In reality much of the problems are being swept under the rug and looked at with tinted glasses. In essence, we are doomed to repeat our recent failures again in the future with the lack of real change that is being advertised as hard core change and stiffer regulation. Citigroup CEO Vikram Pandit, who was involved in the investment side with much of these high risk issues prior to the financial collapse, needs to take note if he hasn’t already done so.
Disclosure: Currently no position in C
No position in C but you’d like to buy them cheap right?
This is just all BS!
Joe Crash,
You think that a company partially owned by the government, which has already said it wants to sell off its holdings, with a ton of toxic mortgage and other issues still on its books….is fairly valued at the current price?
What do you think happens when the government divests itself of those shares?
Who will be complaining then?
If you think thats all BS….please explain why it is and what information you are using to come to that decision. If I were buying, I certainly would not be buying at this price knowing I am going to see a huge sell off by the government….that I can assure you of. Certainly you are entitled to your opinion, but one based on facts would be more believable and relevant.
Did you have same opinion when bac went from 8 to 14 when they doubled their outstanding shares ?
Also do you think there was fraud only at citi and not at lehman, bac, countrwide, wfc, ms,gs…?
Victor,
I do have the same opinion of BAC and as a matter of fact, closed my accounts at that particular institution out of disgust. I also think the fraud was industry wide, however, this particular article is regarding Citigroup, though I do write in the article about issues for the entire industry in the last paragraph. We are being duped into believing that the necessary corrections have been made and things are fine. Truth be told….nothing has really changed that needs to be changed.
A recurring theme, but left out of your entire article, is the one constant that can be found in any financial crisis….government. The typical “corporate greed” description is tedious and dumbs down the mess. I do not clear Citigroup of any wrongdoing, but I do know that through the creation of Fannie Mae and Freddie Mac, the government was way too involved in a sector that should be left to the free market, if one still exists. Through ill conceived legislation, Congress drove the housing market straight to hell. Crying for more regulation is yet another example of the dumbing down of America. You can’t name another industry as heavily regulated as the financial industry, and if you would take a simplistic look at the overall problem, government interference is the root cause and never a solution.
Blake,
I don’t think government was left out of the article at all. In fact, the last paragraph clearly points to incompetence by the government trying to show a fix for something which they broke to begin with, that along with a lack of responsibility for the actions of upper management in a majority of these situations created the situation which we are still attempting to recover from.
Typical shorter’s article. Pathetic.
BUY C
Go read some SEC filings…you know nothing about this equity if you think that. Buying the stock on blind faith is the easiest way to the poor house.
After the government sells their shares and make a hefty profit, Citi will increase their dividend.
Citigroup is not in a position to increase their dividends…they still have major issues. You sound an awful lot like a hedge pumper to me.
You mean all the HEDGE FUND managers…who will turn around and short the average investor…..thanks for the compliment…you just embellished my point.
I cannot comment anything until I see April 19th results. Why can you?, do you have any news in advance?.
Antonello,
I have no advanced news…..only what we already know through SEC filings and recent reports in the news media. That said….I am asking what major improvements have allowed this equity to double in the last year? …….I don’t see anything worthy of that kind of value increase in the filings.
I would just like to comment on the fact it seems you think the government is going to just pull down their pants and poop out all their shares in C at once, therefore driving the price down. From what I can understand the gov plans to divest their stock periodically so the stock wont hit the bottom. I mean you are correct to some extent C shares will likely take a bit of a fall after earnings, but I personally see that as oppurtunity to make more money in the long term.
Regarding the morals of some of these financial institutions such as BAC, C, lehman or whoever, people buy shares to make profit. I think morality is the last thing on our minds. Be realistic what should I care about morals at this point? The economy is in the toilet! I’m not blind I’ve read about the possible injustices in Citigroup but at the end of the day I want my money, and I still view this as a good long term investment.
Yes that is correct….the gov does not plan to divest itself of all shares at once. However…there was already an abundance of shares prior to the government stake being issued..and C traded hundreds of millions of shares daily already. So yes…there will have to be a corresponding drop as those shares come out to the open market in my opinion. I do not see where investors will be any more rabid about Citigroup as it presently is constructed. Possibly as it divests itself of some riskier assets, it will see corresponding growth and bullishness…but at this point I see it as premature.
What evidence is there of price manipulation (other than the steep gain over the last few weeks)?
And separately, what’s your valuation model?
Look at the filings….tell me where there is supporting documentation for this price.
I don’t think you can use a valuation model that would be accurate right now. Much of the so called value of this particular Corporation was lost in the collapse, as they continue to shed risky investments and grow overseas, perhaps a relevant model can be utilized. My opinions come from the SEC filings and media reports, and I would never attempt to give anything other than my personal opinion, The intent here is to remove blinders and help people figure out what is going on. In my opinion, people have become too comfortable with this equity considering all the relevant information available and the still high risk of many of their assets.
You dodged my first question. What basis do you have for the price manipulation claim? Why is “price manipulation” a more reasonable explanation for the recent market movement than “irrational market participants”?
With regard to valuation: is there any company for which you can find explicit supporting documentation for a specific price. That’s not how it works. Rather, market participants interpret supporting documentation using some valuation model. I don’t care how simple the model is, everyone who has a real opinion on price has a model (even if that model is just “Jim Cramer said so”). So I’ll ask the question again: What basis do you have for your valuation judgment?
Honestly do you truly believe that citi is only linked to the usa and not the up and coming markets in country’s with greater demand and needs for banks. India use to be a country of nothing but since the out source of the American jobs emerged India’s become a risisng star. I feel that you honestly just focus on the take of citi’s place in the usa not the fact they are becoming a world bank and most likely a power house in up and coming country’s such as Brazil. I agree that citi is shit in the usa but not the world and that’s why I feel investors at this time should start to think more globally then locally. we have seen huge profit gains within country’s linked outside the usa markets. so I ask you why do you truly feel citi will fail? at this time I feel at four dollars there is a limited chance of the support to be dropped bellow four so why not buy now and wait and if you hope that it will go down below for then please hold your breath so I can watch you drown. Jim Cramer as rated it a buy and yes I will agree hes not allays right but the masses are dumb and will follow him to the end of the world. So even if a company you presume is awful if celebrity investors say BUY BUY BUY the public BUYS BUYS BUYS that is why I truly feel your answer for the stock rise is mostly linked to the masses being told what to buy most people do not even read the annuals but will watch t.v
Who said I believe Citigroup is only tied to the US markets. It is a global enterprise and it has reach all over the world. That does not excuse the poor to terrible decisions that led to the company being on life support recently by upper management. They turned a blind eye because they thought they could cheat their way up and nobody would be the wiser in the end. Unfortunately, that thought process bit them in the ass…as well as many other Banking institutions. I never said it would fail..but I do advise investors to be very cautious, as this particular Bank has quite a bit of housekeeping to do, and has done tremendous disservice to both customers and employees over the course of the last 15 years or so, by thinking all that matters is profit, when in truth that is not the case at all.
Thats fair. I really do agree with you about halfway. I think the investment is riskier than the average person makes it out to be, and It’s going to take a long time to see some real profit. But Citigroup has actually done a pretty good job of divesting the bad assets over the last year and If they continue to do so, along with strengthening their current assets I think in 3 – 5 years their is some real money here. I personally havent decided what I will do after earnings but if the price is right it my be a good idea to beef up my current investment and hold on for the long haul.
The stock price is expected to increase after the Q1 2010 earning release but decrease after the treasury sells there shares. In the long term, how will the price be affected?
It’s going up because the economy is getting better… seems like a no brainer.
It will not be affected because Citi will announce they plan to increase the dividend.
They cannot now because of the shares owned by the governmaent however,after, they sell they will announce their plans bringing in more buyers.
This and the great earnings will trigger massive buying.
The put/call ratio is low meaning more calls and this is very bullish.
Not hard to increase dividends when there are currently none!
The big boys are buying,,Lampert,Soros and Paulson.
Paulson called the banking disaster and now he is buying Citi group big time.
Who do you want to follow a journalist or billionaire money managers.
For the record,
I don’t write for a following. I write to try and make sure people don’t get screwed by the pumpers and bashers out there. People are free to make up their own minds…though apparently you don’t believe that is true. Your opinion is that people should blindly follow those who benefit from leveraging their positions with short sales playing both sides, off the back of the regular joe retail investor. I would hope NO ONE is blindly following what I say…but maybe I get them interested in reading the SEC filings…and they see the picture is not so rosy as you try to portray it. Nothing wrong with information and being informed….knowledge is power.
If you actually look at the balance sheet of Citi, you’ll see that it’s ridiculously overcapitalized at this point in time. Just look at their capitalization and loan-loss provisions and you’ll see why people think that over the next year, there is big money to be had here.
Steve,
I don’t buy that for a second..especially with all those garbage mortgages they took on from Countrywide when they bought them up
You don’t hedge by by going long and short the stock.
You buy the puts if anything and hold on to the common.
The hedge funds must file before they can sell the stocks or buy the stocks.
Their dividend is currently a penny….not none.
Massive buying when they announce they plan to increase the dividend.
Massive call buying now…common stock to follow.
Put to Call ratio low meaning more calls———-Bullish
Market Edge has a buy on them too……….
Lahelm
they gave out a penny in Jan 2009 payable in Feb 2009….whoop de damn doo. Effectively…no dividend…..like I said! On top of that…when Government took their stake Citi suspended dividends for common and preffered shares.
Former Citigroup Chief Executive Chuck Prince on Thursday said he was sorry that his management team could not have foreseen the “unprecedented market collapse” that unfolded in 2008. “Let me start by saying I’m sorry,” Prince told a financial crisis inquiry commission on Capitol Hill. “I’m sorry the financial crisis had such a devastating impact on our country. I’m sorry for the millions of people, average Americans who have lost their homes and I’m sorry that our management team, like so many others, could not see the unprecedented market collapse that lay before us.”
Crocodile tears…..nothing gets in the way of GREED!
Citigroup is a holding company now.
There is the banking and the holding company.
You should get the facts together before you write.
Remember massive call buying and I forgot to mention Carlos Slim bought Citigroup common also, if you don’t know of him he is the richest man in the world.
Maybe you should start writing childeren’s books.
Lahelm
@asm610
Citi didn’t buy Countrywide, Bank of America did. And take a look at the actual balance sheets. You’ll see Citi’s Tier 1 Capital has gone from roughly 8% up to over 12%, and their loan-loss provisions have gone up from 1.39 billion to 7.42 billion. Not to mention that due to the downgrades of all the mortgage CDOs, they now have to hold 200% of the value of those, rather than 1.6% required when those CDOs were rated AA and AAA. Do a little research and you’ll see that they’re actually in very good financial shape.
Steve,
apologies, it was ACC Capital parent to Ameriquest that they bought up all the sub prime mortgages from…not Countrywide….I stand corrected.
ESL,
You’re spending an awful lot of time defending a company that just awarded a bunch of insiders shares on APRIL FOOLS day no less at the low…low …gotta love it price of 3.66 a share! Wasn’t that sweet of them? You need to stop your posturing and pumping. Those are shares of the common…..the same shares we had to pay over 4.10 for on the first if we wanted to purchase.
The seperate entities were created to make the numbers look better as well as to pool all the toxic issues on one side while they try to get rid of them…in case you didn’t know. Still one company…makes no difference….just hides information from the average joe.
MASSIVE,,MASSIVE CALL BUYING,,,MASSIVE.
UP ANOTHER .11 TODAY,,,
CITIGROUP WILL BE OVER $5.00 BY EARNINGS THAN THERE WILL BE ANOTHER RUN UP, THEN THE GOOD NEWS WILL COME OUT WHILE THE GOVERNMENT IS SELLING, MAKING A NICE PROFIT,THE GOOD NEWS WILL KEEP THE STOCK UP TRIGGERING BUY ORDERS…FINALLY SETTLING AT $7.00.
Smoke and mirrors ESL…what do you think those 424B prospectus filings are about?
“Citigroup Inc. is a diversified global financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers. Citigroup Funding is a wholly-owned subsidiary of Citigroup Inc. whose business activities consist primarily of providing funds to Citigroup Inc. and its subsidiaries for general corporate purposes. ”
I guess this is what you are mapping your scenario on…..shifting funds…..
Major banks reportedly masked risk levels
2:47a ET April 9, 2010 (MarketWatch)
LONDON (MarketWatch) — Major U.S. banks have masked the level of risk they are taking over the last five quarters by lowering their debt levels just before reporting the figures publicly, The Wall Street Journal reported Friday, citing data from the Federal Reserve Bank of New York. The newspaper said a group of 18 banks, including Citigroup , Goldman Sachs , J.P. Morgan Chase , Bank of America and Morgan Stanley , understated the debt levels used to fund securities trading by cutting them an average of 42% at the end of the last five quarters, compared to their peak levels during the quarter. The data covers banks’ short-term borrowing in the repo market. The practice is legal, but can give investors a distorted impression of the amount of risk a bank is taking, the newspaper said. A recent report into the collapse of Lehman Brothers highlighted the firm’s use of repo transactions, though in Lehman’s case the firm allegedly hid the repo transactions by accounting for them as sales, rather than actually reducing its quarter-end debt.
The simple fact is that greed will continue to run rampant in the big banking industry as well as in other financial industries such as the insurance industry. This greed will continue until the government starts putting a lot of these folks in jail. Afterall, they almost put this country into another depression and yet no real accountability. Real and effective regulations on these huge banks have yet to be enacted and may never happen with the economy recovering, but another massive crisis is certain to occur if nothing is done. Citibank is truly an example of one of the worse. Sure, there is opportunity here to make money up and down, but the immorality of these huge institutions continues and is inexcusable…
I find it terribly amusing that Citigroup is now exploding. Again someone is going to get burned bad when the dodo hits the fan. There are absolutely no merits involved in substaining such a run up.
I think the source of the problem is human nature. If things are so bad for so long humans will grow accustomed to the conditions perpetuated on them and will eventually use their hopes to pretend things are better than they really are.
Stocks like this do offer huge opportunities to make money…just look at this past weeks action on financial insurance companies like ABK and PMI…guilty as any banks with toxic assets and fundamentals that are terrible yet look at the gains on pure speculation…vsn pay to bottom feed for sure if you have the guts…
My point…is be very careful…and ready to pull the trigger on those profits…because the fall could be pretty fast and furious if it comes.