Citi’s Endgame

posted by Nima

November 21, 2008 · Posted in Business 

2 months ago I wrote that Citigroup, GM, Ford, or GE will go bankrupt soon unless they receive additional bailout money. Of course this wasn’t a strike of genius, I was merely pointing out the obvious.

As far as GM and Ford, they don’t deserve any more mention. These two giant jokes cannot possibly be called business operations. It is insulting to see the media seriously pose the question as to whether or not the taxpayer should even consider sparing his change for these miserable failures. It hurts to see their executive junkies squander more money on private jets to capitol hill in order to petition for yet another bailout fix. They, along with the UAW, need to be wiped off the face of the earth once and for all and stop making the American car industry the ridicule of the world.

Citigroup is finally approaching its endgame, too.

TheStreet.com writes:

Citigroup executives began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, the Wall Street Journal reports.

This would actually be the right move. But it would expose the truth that Citi isn’t worth anything. At this point, the only salable unit appears to be Citi’s GWM (Global Wealth Management) division.  Its profit only dropped by 27% for the first 3 quarters of 2008 when compared to the same period in 2007. Global Cards was still profitable in the first 3 quarters but dropped by 79% and will, without a doubt, get wiped out in 2009/2010 with the inevitable collapse of consumer credit. The other 2 divisions, ICG (International Clients Group) and Consumer Banking have turned profits in the first 3 quarters of 2007 into substantial losses in the same period for 2008 (1.8 billion and 10.4 billion, respectively).

The internal discussions are at a preliminary stage and don’t signal that Citigroup’s board and management are backing down from their insistence that the New York company has ample capital, funding and strategic direction, the Journal reports, citing people familiar with the matter.

Just a few facts:
- Based on their recent 10Q Citigroup  has Shareholder’s Equity of around $113 Billion
- Citi is holding $1.1 Trillion in off-balance sheet assets.
- These assets have been used to fund holding firms for risky mortgages, short term commercial paper, and CDOs
- All of these will eventally have to return to Citi’s balance sheet
- If Citi had to write off only 15% of these assets this would wipe out their entire shareholder’s equity unless they manage to recapitalize the business significantly
- Who is going to help recapitalize a business that faces multi-billion dollar write downs, yet still pays a dividend? (except of course for the distinguished Prince Alwaleed of Saudi Arabia who seems to enjoy burning his money)

Citi is a lost cause. Finally their management is waking up to reality. The company, as we know it, will not survive.

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