Citigroup Board Said to Weigh Options as Stock Drops (Update1)

By Bradley Keoun and Christine Harper

Nov. 21 (Bloomberg) — Citigroup Inc.’s board meets today to discuss the bank’s options after Chief Executive Officer Vikram Pandit’s efforts to rebuild investor confidence failed to halt the stock’s descent to a 15-year low, a person with knowledge of the matter said.

The board, led by Chairman Win Bischoff and independent director Richard Parsons, will meet at Citigroup’s headquarters in New York, said the person, who declined to be identified because the deliberations are private. The panel may choose to sell pieces of the bank or the entire company, the Wall Street Journal reported, citing unidentified people familiar with the situation. The New York Times reported that management isn’t actively considering a sale or split up of the bank.

Citigroup, once the biggest U.S. bank, with a stock market value of $274 billion at the end of 2006, dropped yesterday to about $26 billion, slipping to No. 5 after Minneapolis-based U.S. Bancorp. A plan Pandit announced this week to cut costs by shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal didn’t assuage shareholders’ concern that bad loans and securities writedowns may extend a yearlong run of net losses totaling $20 billion.

“Investors right now aren’t convinced that we’re done seeing dead bodies on the Citigroup balance sheet,” said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. in Milwaukee, which oversees about $1 billion and doesn’t own Citigroup shares. “That’s what the sell-off is, concern over more and more losses over the next couple of quarters.”

Stock Market Rout

Citigroup spokeswoman Christina Pretto declined to comment on the board meeting. She reiterated a statement made by the New York-based company earlier this week that it has “a very strong capital and liquidity position and a unique global franchise.” Citigroup was up 92 cents at $5.63 in German trading today.

Including a $25 billion capital injection from the U.S. Treasury under the $700 billion Troubled Asset Relief Program, the company has at least $50 billion of capital in excess of the amount required by regulators to qualify as “well capitalized.” Capital is the cushion banks must keep to absorb losses and protect depositors.

The company’s shares fell 26 percent in New York trading yesterday, closing below $5 for the first time since 1994, as stocks worldwide sank on concerns a global recession may deepen. JPMorgan Chase & Co., the biggest U.S. bank, fell 18 percent to $23.38, while No. 2 Bank of America Corp. declined 14 percent to $11.25 and Wells Fargo & Co. fell 7.7 percent to $22.53. U.S. Bancorp fell 6.4 percent to $22.12.

`Throwing in the Towel’

“What you’re seeing here is more emotional selling, more people throwing in the towel and they are throwing everything out, not just Citi,” said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $2.9 billion and doesn’t own Citigroup stock or debt.

Pandit, 51, has pledged to preserve Citigroup’s strategy of combining a wide range of financial businesses in a single company. They include branch banking, retail brokerage, trading, investment banking, credit cards and transaction processing.

Pandit was appointed last December to succeed Charles O. “Chuck” Prince, who was ousted as mortgage-bond writedowns saddled the bank with a record fourth-quarter loss of almost $10 billion. Prince was the handpicked successor of former Chairman and CEO Sanford “Sandy” Weill, who built the company through a series of acquisitions over 17 years before stepping down in 2003.

Bischoff, 67, was Citigroup’s top executive in Europe until he was named chairman when Pandit became CEO.

Crittenden’s View

Bank employees have been telling customers their deposits are safe, and so far corporate clients haven’t moved their money elsewhere, said three people familiar with the matter who declined to be identified because they weren’t authorized to speak publicly about the accounts.

Chief Financial Officer Gary Crittenden, 50, has told colleagues it would be unwise to make hasty decisions to dispose of good businesses to satisfy investor demands for a show of action, one person familiar with the matter said.

The bank may try to sell “non-core” units, similar to the divestiture earlier this year of retail-banking operations in Germany and Citi Global Services Ltd., an Indian unit that processes transactions and provides other “back-office” services, Optique’s Fitzpatrick said.

“They’re still going to stick with the game plan of selling off non-core assets, but I don’t know what you can sell in an environment like this,” he said.

`No Bottom’

Citigroup executives who spoke on condition of anonymity because they weren’t authorized to comment publicly said they felt besieged by negative rumors propagated by short sellers betting on a decline in the share price.

Bank officials have discussed with the U.S. Securities and Exchange Commission and lawmakers the prospect of reviving a prohibition on short-selling financial stocks, according to a person familiar with the matter.

Few investors are willing to bet on the stock’s recovery, said Laszlo Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut.

“The problem is credibility,” Birinyi said in a Bloomberg Television interview yesterday. “There seems to be no bottom.”

Costs for bad loans have almost doubled in the past year to $9.07 billion in the third quarter, and Pandit told employees this week that net credit losses in the banks’ consumer divisions may be as much as $2 billion per quarter next year. The cost cuts announced this week may save about $2 billion per quarter.

Government Intervention?

Citigroup is so integral to the global financial infrastructure that the U.S. government is unlikely to let the bank collapse, said Barry James, president of James Investment Research Inc., which manages $1.75 billion in Xenia, Ohio. He doesn’t own Citigroup shares.

While the bank’s debt holders may be spared, shareholders likely won’t fare as well, Bahl & Gaynor’s McCormick said.

“If I was a Citi shareholder I would expect to see increased volatility, more government stimuli and a possible merger or acquisition,” McCormick said. Any government aid would be dilutive to stockholders, he said.

Pandit and three deputies who bought about 1.3 million Citigroup shares last week in a show of confidence already are sitting on paper losses. Pandit bought 750,000 shares at an average price of $9.25 apiece. At yesterday’s closing price, they’re worth about $3.41 million less.

Parsons, the 60-year-old lead director and chairman of Time Warner Inc., bought 35,000 shares this week for an average price of $8.15, Citigroup said yesterday in a regulatory filing.

The stock “is for speculative investors,” McCormick said. “Let’s face it.”

To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.

Last Updated: November 21, 2008 03:27 EST

Popularity: 1%