Citigroup (NYSE:C) is slowly ascending once again, which is interesting given Citigroup was recently mentioned, along with Bank of America (NYSE:BAC) and Deutsche Bank (NYSE:DB), as being among a group of financial institutions that shed debt just before quarter’s end to disguise levels of risk. The companies have been lowering their net borrowing in the repo market by an average of 41% at the end of each of the last 10 quarters, according to Fed Reserve data. This points out the systemic issues that have yet to be fully addressed in the Banking industry; as extensive use of repos was what allowed Lehman to improve its risk appearance quarter after quarter before that firm was forced into bankruptcy in September of 2008.
An upgrade from Oppenheimer in which they raised their outlook on Citigroup to outperform may also have contributed to the sudden momentum in Citigroup shares. Oppenheimer sees Citigroup shares trading below book value of $4.09 or so. Reducing short term borrowing ahead of the end of a quarter does not appear to be illegal at present, but the Securities and Exchange Commission is reviewing and considering new rules that would require increased disclosure of such practices, according to a recent report in the Wall Street Journal. The repurchase market, more commonly known as the repo market; where banks put up securities as collateral to get quick access to funds, is one of the riskiest ways to borrowing because it is so short term. If sudden panic were created for some reason and markets seized up, banks that rely too heavily on this particular market transaction could suddenly find themselves in a funding crisis, such as what happened with Bear Stearns and Lehman Brothers during the 2008 financial market collapse. Citigroup stock may also be rising from a report in the Financial Times that said that the Qatar Investment Authority is strongly considering buying some of the U.S. Treasury’s 27% stake in Citigroup.
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