Will Citigroup Regain Its Lost Luster?

by: Mark Riddix November 20, 2008 | about stocks: C    

Mark Riddix

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Citigroup (C) announced Monday that it would be laying off 53,000 workers. The company has already laid off 23,000 employees earlier this year. Citi has lost 20 billion dollars over the past year and has had four straight quarterly earning losses. The company is on its third CEO in the last year, and has watched its stock price decline to $8.00 per share and its market cap shrink to 43 billion. Citigroup is also facing mounting losses from its mortgage, credit card portfolio and will likely need to raise additional capital. The firm is trying to return to profitability by selling off assets and implementing a number of cost cutting initiatives. This strategy will help it in the near term, but it does not solve the long term issues that plagued the company.

Beginning with the ill fated acquisition of the Travelers Group, Citigroup has struggled since the late 90's to find its niche in the banking industry. The bank grew to prominence by making large acquisitions and through aggressive cost cutting. These tactics allowed Citigroup to flourish in the 90's. The problem with relying on these methods to fuel growth is that eventually you run out of major acquisitions to make and costs can only be reduced for so long.

This is the problem for Citigroup. It doesn't seem to be exactly sure what kind of business it is. It has been trying to redefine its business model for the past 10 years. Is Citigroup's main business consumer banking, investment banking, insurance or credit cards? Is Citi more focused on international growth or increasing its domestic presence in US banking? Can Citigroup be a smaller player and still survive among the banking giants?

Citigroup is now trying to find its place in the new financial landscape. The bank faces a much more challenging environment with Bank of America (BAC), JP Morgan (JPM), Wells Fargo (WFC) and US Bancorp (USB) all aiming to become larger players in the diversified financial services industry. The failed merger with Wachovia would have helped Citigroup by significantly increasing its number of branches in the US. It would have also given the company a foothold in the southeast region of the US. However, it would not have addressed the larger problem of no organic growth. Citigroup's main focus should be on increasing profitability through organic growth and not acquisitions. The company needs to maximize earnings in the businesses that it already owns.

Citigroup currently pays a dividend of 64 cents per share which amounts to a 6.7% yield. The dividend does not appear sustainable based upon the company's weak balance sheet and deteriorating loan portfolio.

Will Citigroup survive? Definitely. Citigroup is a company that has been deemed too big to fail. The Federal Government's 25 billion dollar cash injection makes that a certainty. Citigroup will survive, but its days as a thriving company in the financial services industry may be a distant memory.

Stock position: None.

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This article has 7 comments:

  •  
    Nov 20 04:25 AM
    Why so much vitriol aimed at Citi?It has the same problems of the other banks,and many of those have worse ones.Does anyone seriously believe that the business model of Goldman or Morgan Stanley is more solid than Citi's?And BAC that overpaid for toxic Countrywide just as it went into the tank,and then repeated the same error with Merrill-is that the sign of great management?And JPM that bought the problems of Bear Stearns and WAMU when these should have been allowed to die?And Wells that bought Wachovia whose funny mortgages exceed the capital of Wells-is that a great deal ,by a great management who now have a multi-billion lawsuit from Citi hanging over them for the next few years?Anyone noticed that Berkshire Hathaway's stock has dropped by 40% (just like Citi)in the last couple of months?Yet no one is clamouring for Mr.Buffet's head!During this time,Citi has raised lots of capital,sold off businesses,reduced expenses (more than any other bank),reduced its balance sheet(especially in the risky categories),helped millions of americans reschedule their mortgages so they won't be tossed out into the street etc.Yet no one pays attention to the good things done.There is no magic wand-and certainly no other bank has one either.2008 won't be pretty for any bank.But we all need Citi.If Citi does not survive,then no other bank will,as they are all linked together -as the Treasury learned too late with Lehman.So the rabble calling for Wall St. to be punished got its wish with the collapse of Lehman.And since then the catastrophic aftereffects have proved conclusively that allowing Lehman to fail was the mistake of the decade.We all have a lot more to gain from having a positive,supportive,at... to Citi and the others than in running them into the ground.
    Reply | Link to Comment
  •  
    Nov 20 05:07 AM
    Citi is not laying off 53000. Half will be transfers in companies that will be sold. Like always, wrong way to give news.
    Reply | Link to Comment
  •  
    Nov 20 07:17 AM
    The banking model where you make real money out of phantom money is dying. We need to get back to a model that is focused on meeting customer needs effectively and making a profit as a result. How boring but sustainable! Unfortunately the system is awash with toxins and I fear that the prolonged ‘near death’ experience will continue for some more time. As a shareholder of Citi for over the past 15 years, I have watched in horror as its share price has being massacred over the past 18 months, I can only keep fingers crossed and hope that actual death doesn’t occur. Since the other banks are in the same leaky boat, society will hopefully rescue them – but hold to account those who have rewarded themselves so handsomely with other people’s money.
    Reply | Link to Comment
  •  
    Nov 20 07:47 AM
    Looks like eventually Citi needs to be bailed out AIG style. Watch developments.
    Reply | Link to Comment
  •  
    Nov 20 11:26 AM
    Why not long C???
    Reply | Link to Comment
  •  
    Nov 20 03:39 PM

    I agree in totality! What the market needs at this moment is not depressing news after news. Focus on the good to get good done for all. No one is benefitted by another bank crashing. That is the last thing that is needed at this moment.

    On Nov 20 04:25 AM C.Elder wrote:

    > Why so much vitriol aimed at Citi?It has the same problems of the
    > other banks,and many of those have worse ones.Does anyone seriously
    > believe that the business model of Goldman or Morgan Stanley is more
    > solid than Citi's?And BAC that overpaid for toxic Countrywide just
    > as it went into the tank,and then repeated the same error with Merrill-is
    > that the sign of great management?And JPM that bought the problems
    > of Bear Stearns and WAMU when these should have been allowed to die?And
    > Wells that bought Wachovia whose funny mortgages exceed the capital
    > of Wells-is that a great deal ,by a great management who now have
    > a multi-billion lawsuit from Citi hanging over them for the next
    > few years?Anyone noticed that Berkshire Hathaway's stock has dropped
    > by 40% (just like Citi)in the last couple of months?Yet no one is
    > clamouring for Mr.Buffet's head!During this time,Citi has raised
    > lots of capital,sold off businesses,reduced expenses (more than any
    > other bank),reduced its balance sheet(especially in the risky categories),helped
    > millions of americans reschedule their mortgages so they won't be
    > tossed out into the street etc.Yet no one pays attention to the good
    > things done.There is no magic wand-and certainly no other bank has
    > one either.2008 won't be pretty for any bank.But we all need Citi.If
    > Citi does not survive,then no other bank will,as they are all linked
    > together -as the Treasury learned too late with Lehman.So the rabble
    > calling for Wall St. to be punished got its wish with the collapse
    > of Lehman.And since then the catastrophic aftereffects have proved
    > conclusively that allowing Lehman to fail was the mistake of the
    > decade.We all have a lot more to gain from having a positive,supportive,at...
    > to Citi and the others than in running them into the ground.
    Reply | Link to Comment
  •  
    Nov 20 11:51 PM
    does anyone use any real numbers or just recycle baseless stories.. if those other banks are the giants then lets see what you write three months from now....
    the citi story is not over, you are wrong on many aspects but i dont have the time..good luck
    Reply | Link to Comment
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