Wednesday, January 16, 2008

Citigroup: Were Do We Go?

I save the rehash of Citigroup's (C) quarter. We expected it to be awful, and Citi delivered.

The dividend cut to $.32 a quarter for a still fat 4.5% yield. $18 billion in write-downs, a $9.8 billion loss ans $14 billion in change in preferred stock sold to investors. That finishes my Q4 review.

So, where do investors go from here? Is there light at the end of the tunnel? YUP

The terms of the convertible preferred issuance are $12.5 billion, a 7% dividend, a 20% conversion premium and are non-callable for seven years. The firm will also sell $2 billion in common stock to all shareholders. Time to be announced.International Businesses:

Citi is booming here. International consumer cards net income more than doubled,up 68%. International growth drove an 85% increase in net income at the Private Bank and a 7% increase at Smith Barney.

Europe, Asia, Latin America, Africa and Middle East consumer divisions all experienced high double digit net income growth. Latin America and Asian Markets & Banking divisions net income grew at mid double digit rates.

Now, admittedly saying "except for those write-downs it would have been a great quarter" is more than a bit like saying "other than the assassination, how was the theater Mrs. Lincoln?"

Much of the planned head count reductions are going to come from asset sales. Both of these things are exactly what need to be done. The dividend did not need to be cut and I think returning it will be a priority down the road.

Part of the problem is that Pandit will not make anyone forget Sandy Weill or Jack Welch. Charisma is not in his DNA. That does not mean he cannot get the job done. Turning Citi is a job unlike any other.

Wall St. wanted blood Tuesday and did not get it. Because of that, the stock is selling off. Personally, with an operation the size of Citi, coming out and saying "this is the finalized plan" a couple months after being on the job would have been irresponsible. It just is not possible to do a detailed job in that time frame. Had he done it that way, he would have been relying heavily on the opinion and advice of others, not a good idea at this point.

Pandit needs to take decisive action and has Q1 to do it. He should not just fire away to make jittery investors happy.

Disclosure: Long Citi

Todd Sullivan's- ValuePlays

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