By Steve Garcia                            

Last week, Citigroup (NYSE:C) showed a net profit of $2.7 billion, or 9 cents per share when they announced Q2 results, which was down from the 49 cents per share profit of Q1. Citigroup revenue was $22.1bn, down $3.4billion from Q1 2010. Citigroup CEO Vikram Pandit, was happy with what he termed ‘solid’ figures for the latest quarter. Compared with same period last year numbers, consumer banking revenue rose 9% in Latin America and 10% in Asia, more than offsetting declines of 3% in North America and 5% in the Europe-Middle East-Africa region. On a global basis, consumer banking revenue rose 2% from a year earlier, to $8.03 billion.  Trends were similar for transaction services, with revenue rising 5% in Latin America and 6% in Asia and falling 3% in North America and 1% in the Europe-Middle East-Africa region.

With that in mind;  Citigroup continues walking the green mile to sustained profitability this quarter as the Treasury Department announced it will sell 1.5 billion more shares of Citigroup (NYSE: C) stock over the next couple of months.  This is the third tranche sale in the government’s Citigroup bailout fund recovery effort.  The proceeds are part of the repayment of funds from Citigroup’s portion of the $700 billion financial bailout.  The third tranche of Citigroup stock sales will start immediately and be completed by Sept. 30, according to a spokesperson at the Treasury.

The government has already sold 2.6 billion shares for $10.5 billion in the first 2 tranche sales over the course of the last 2 fiscal quarters.  Citigroup originally received $45 billion in taxpayer funds through the Troubled Asset Relief Program (TARP).  Of the $45 billion, $25 billion was converted to a government-ownership stake through shares of common stock  with Treasury receiving 7.7 billion shares at a share price of $3.25.  At that time, the stake equated to 27 percent of the company.  Citigroup repaid the $20 billion unconverted portion of the loan last December.  Citigroup stock over the past 52 weeks has ranged in price from a low of $2.56 to a high of $5.43.

The Treasury Department has stated its intentions to sell its entire stake in Citigroup by the end of this year.  The first tranche of sales, covering 1.5 billion shares, concluded in May.  The second, which covered another 1.1 billion shares, ended recently after beginning in June.  Once those shares are all sold, I would expect some sort of share repurchase by the company, or perhaps a reverse split to reduce the bloated share count.

Though heavily criticized, and rightly so for bailing out these huge financial institutions, it is nice to know that at least there will be a return on the Citigroup investment by the government when all is said and done that can be used to pay off some of the deficit it created.  Simple math shows at least a 10 billion dollar increase in share value at an average price of $4.00 dollars. 

It is also good to see Citigroup continuing its course of return to a core banking institution.  The company continues to re- evaluate its assets and look for buyers for assets deemed expendable by Citigroup in its return to focusing on its core businesses.  Cautious optimism is the thought also with non US markets continuing to show growth for the company, particularly Latin America and Asia. While the growth has been good in those regions, it is still on fragile footing with global economic concerns still prevailing.  Citigroup also is beginning to see real reductions in operational costs from strategies it implemented over the past decade or so of severing long time employees and management and bringing in less experienced and less expensive personnel to replace them.  The initial cost of those severance packages may have been worth it considering the state the company found itself in, in late 2008 and into 2009.  One has to question the decision though as there is no substitute for experience in the highly competitive Banking business.  Overall, Citigroup is getting healthier as a company as it trims the excess fat, sells off non essential assets and toxic debt is painstakingly removed from its ledger. Citigroup is on an upward trajectory if it continues to execute its plan.

 Disclosure: No position in C at this time

By Steve Garcia

Citigroup (NYSE:C) shares continue to be volatile.  Shares of Citigroup, which were trading at more than $55 per share in 2007 plummeted to less than $2 in 2009 and have begun to recover reaching more than 5 dollars in April.   Citigroup shares closed below 4 dollars in trading yesterday at $3.86 per share.  This is not an unexpected situation for informed investors; as the government owns more than one quarter of Citigroup, and has been unloading roughly 20% of their stake of approximately 7.7 billion shares in the company since late April.  The Treasury began selling its common shares under a prearranged plan with Morgan Stanley as the sales agent for the deal.  The initial sell off of shares amounts to roughly 1.5 billion shares. Citigroup stock should basically trade sideways to slightly lower while unwinding of this first lot is completed.  Once complete, the stock should move up as the company continues to unwind or sell off many of its toxic assets; on the path back to its core banking business as the fundamentals continue to improve.  It is important to remember that at some point the Fed will have to raise interest rates and banks like Citigroup will once again have to actually work at turning a profit, but over the long haul, this stock should bring solid gains to its holders. (more…)

By Steve Garcia

Citigroup (NYSE:C) said Friday that it will buy back $535.9 million worth of its notes as part of tender offer which was previously announced.  The cash tender offer expired at 5 p.m. Thursday.  As of the expiration date about $535.9 million aggregate principal amount of notes were validly tendered and not withdrawn or were subject to binding commitments to sell to Citigroup.  All of the debt notes being repurchased were scheduled to come due this year and in 2011.  The move is part of Citigroup’s strategy to utilize available cash to terminate debt nearing maturity and reduce overall interest payments.  The tender offer is not expected to impact liquidity, the company said. Citigroup expects to settle all tenders by May 11. (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…)