A comfortable relationship

By Steve Garcia

As the enthusiasm for shares of Citigroup (NYSE:C) following an incredible turnaround quarter begins to fade, there appears to be more good news coming.  Prince Alwaleed Bin Talal, the Saudi Prince who is a large investor in Citigroup, announced this week that the globally reaching, New York based bank is applying to open an office in Saudi Arabia. Citigroup stock traded in the mid 4 dollar range at close yesterday; down from the previous day’s trading with continued heavy volume. Profit taking and slow but steady unloading of the US governments position most likely has been a factor in the downward momentum. (more…)

By Steve Garcia

Citigroup (NYSE:C) announced yesterday that it is selling off its Hedge Fund Business to Skybridge Capital LLC. which specializes in startup hedge funds.  The business has been sitting in Citi Holdings, a recent implementation into the Citigroup structure with a number of other assets that Citigroup is trying to sell off or wind down due to the events of the recent financial crisis.  Many of these assets were part of the Sanford Weil acquisition strategy which was implemented in the late 1990’s at Citigroup and bloated the company.  This plan created too many limbs and different strategies which were impossible to grasp and manage over the years and did not help Charles Prince, who in all honesty was not qualified to run such a huge financial conglomerate, never mind a bank. The deal was being talked about since February but seems to be entering final stages.  No actual terms were released.

This is a perfect example of what Citigroup needs to do to reposition itself and strengthen itself as a bank first and foremost again. It is also a far cry from recent testimony at banking related hearings from Charles Prince and others.  The assets which the company determined as not part of the company plan have all been sitting in the Citi Holdings side of the house, awaiting buyers or liquidation.  As the company continues to shed these riskier assets and moves back towards the core banking business it first started out being, investors and customers will begin to see the benefits and financial rewards of the newly re worked and streamlined entity.  In effect, Citigroup is returning to its roots; not a moment too soon and a long overdue decision in my opinion.  CEO Vikram Pandit and future  management will have more transparency and a better stronger management team as a result.

The market seems to be welcoming this news with open arms, and for good reason.  Citigroup appears determined to reverse the issues that bogged it down and nearly sent it to a similar fate as Lehman Brothers.  Citigroup coming back off the mat should be viewed as a good thing, however, shareholders need to stay on top of the situation with all the different situations taking place, from raising cash through new bond offerings for general corporate purposes to new IPOs (Primerica) (NYSE:PRI) in efforts to divest itself of some under performing or non essential assets which came with the merger that occurred through Weil, knowing what is currently going on can lead to some solid profits in this equity.  Primerica (PRI) is up since its initial public offering price of 15 dollars and is trading near the 26 dollar level.  Alas Primerica has apparently gone full circle; and Citigroup intends to totally divest itself of Primerica moving forward.  Continued cautious optimism is advised, as Citigroup continues to return closer to its roots with US Government backing and support as well as continued growth  abroad with obviously improved confidence domestically among retail and institutional shareholders.

Disclosure: Currently no position in C or PRI

By Steve Garcia

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. (more…)

By Steve Garcia -

Citigroup is looking healthier today though still in critical condition. It is both technically and fundamentally a different company than it was prior to the market crash two years ago. CEO Vikram Pandit recently told an audience at a conference “We are well positioned to return to sustained profitability.” Though that seems a bit of a stretch at this time, the company does seem to be re assessing its core businesses and mitigating the risky side of the house, which should make investors happy. Over the past couple of weeks in fact, it seems investors have taken a bullish view of the company, sending Citigroup shares up over 6 percent to a recent high of $4.22. The stock is up roughly 20 percent in the past couple of weeks. Mr. Pandit has yet to address a timetable for a return to profitability, but he said Citigroup sees big growth in emerging markets including Latin America and Asia, which generated about half of Citigroup’s 2009 revenue.

2009 was not very kind to Citigroup, the company lost $1.61 billion, or 80 cents per share. It lost $27.68 billion or $5.61 per share for comparison in 2008. Most of the losses were from toxic residential and other consumer loans. Going forward, the bank looks to focus on client businesses in three core areas attributed to its Citicorp division; investment banking, consumer banking and transaction services like credit cards. (more…)

By Relmor Demitrius -

The year 2008 proved to be a very educational one for the average investor.  Due to the stock market downtrend, bank failures, and emergency FED meetings galore, we learned some interesting diction during this economic downturn.  Stagflation, inflation, deflation, recession, depression, V shaped corrections, W shaped corrections, FED rates, LIBOR rates, and what the hell is a CDO?  What is the boom/bust cycle?  What are cyclical stocks?  Value stocks?  All these concepts and words were being thrown around by so called “experts” on every news TV show to every financial bog and newspaper in the country.  The amount of half truths, misinformation, and just plain fear mongering was staggering.  I think as time has passed, and a clear mind can now be used to refocus on some of these past events, terms, and concepts.  We can use this to better understand where to put your money a year from now, or even tomorrow.  But first, you have to understand the animal.

At the core of all of this is having a basic understanding of the economic and monetary rules that are applicable to today’s world.  At the very core, the first concept that must be understood is what is fiat currency, the current monetary system we are using today.

Fiat currency is a currency that is backed by nothing, and measurable only to other currencies.  This is where the term “floating currency” comes from, which means it is only “floating” in apparent value up or down in comparison to other currencies currently backed by nothing.  The Euro, Yuan, Ruble, and most major foreign currencies are indeed backed by nothing but a promise.  In effect they are not assets, they are simply a way to pay debt.  Since we live in a world of debt, they should always have a use, however.  In 1941, with the creation of the Taft-Hartley Act, which Nixon revoked, we were on a limited gold standard.  When the U.S. dollar was implemented as the worlds reserve currency, we promised that an exchange for gold would always be possible.  Well in August of 1971, Nixon said, No more.  The dollar can no longer be redeemed for gold.  Costly war expenses, innovations in modern banking, and other factors lead to a huge influx in the money supply.  There soon simply wasn’t going to be enough gold to give out, if so demanded. (more…)