C - Citibank

[kevin4u2]

What are people buying here common, warrants or leaps?

 

Thanks.

[SharperDingaan]

Citibank was arrogant, gamed the system, & have just leant that they are nowhere near as good as GS.

 

They were called on fudging the numbers, which is largely expected; but Citibank risk management has to be either incompetent, or trying to hide a very large hole, to screw up this badly. It would appear that regulatory discussion had been going on for some time, getting worse, & that regulators have finally had it with the BS

 

The Mexico issue last month was not a misdemeanor, it was a material loss of control. Senior management would have been aware, as it was occurring, & deliberately chose to look away. Same issue as was the case with Libor fixing.

 

So the Citibank solution is a public spat with the regulator .....

And now, just maybe, the regulatory solution is a partial dismemberment ....

 

The last time something like this occurred was BP in the Gulf Coast - & the stock dropped like a brick.

Apparently it cannot happen here.

 

SD

[loganc]

Citibank was arrogant, gamed the system, & have just leant that they are nowhere near as good as GS.

 

They were called on fudging the numbers, which is largely expected; but Citibank risk management has to be either incompetent, or trying to hide a very large hole, to screw up this badly. It would appear that regulatory discussion had been going on for some time, getting worse, & that regulators have finally had it with the BS

 

The Mexico issue last month was not a misdemeanor, it was a material loss of control. Senior management would have been aware, as it was occurring, & deliberately chose to look away. Same issue as was the case with Libor fixing.

 

So the Citibank solution is a public spat with the regulator .....

And now, just maybe, the regulatory solution is a partial dismemberment ....

 

The last time something like this occurred was BP in the Gulf Coast - & the stock dropped like a brick.

Apparently it cannot happen here.

 

SD

 

Exactly where are you getting the information that they were fudging the numbers.  If the Fed knew they were obviously fudging the numbers, then how did C pass the quantitative part of the stress test?

[SharperDingaan]

http://dealbook.nytimes.com/2014/03/27/failing-stress-test-is-another-stumble-for-citigroup/?partner=yahoofinance

 

"Yet the regulator’s displeasure shouldn’t have been a total surprise. In its report, the Fed noted that Citigroup had failed to sufficiently correct deficiencies that the regulator had flagged to the bank previously. And it was the only one of the nation’s five top banks that failed to persuade the Fed to bless its capital plan."

 

They passed subject to correction of deficiencies.

They didn't do the corrections, & FAILED.

 

SD

 

[fareastwarriors]

http://dealbook.nytimes.com/2014/03/27/failing-stress-test-is-another-stumble-for-citigroup/?partner=yahoofinance

 

"Yet the regulator’s displeasure shouldn’t have been a total surprise. In its report, the Fed noted that Citigroup had failed to sufficiently correct deficiencies that the regulator had flagged to the bank previously. And it was the only one of the nation’s five top banks that failed to persuade the Fed to bless its capital plan."

 

They passed subject to correction of deficiencies.

They didn't do the corrections, & FAILED.

 

SD

 

Hopefully they learn?

[alertmeipp]

Easy money, all we have to do is buy some and wait. This is not a bad thing long  term. Citi is going through what bac did, just more complex and rewarding.

[wescobrk]

Agreed, this is a 2015 story now.

Even with large earnings reductions it's projected to have tbv of 60 by q4.

The board will pressure to start selling off divisions if they believe the Fed will turn them down in 2015.

They have some great businesses but everything is masked by ccar and citi holdings.

 

 

[dcollon]

From Tom Brown at Bankstocks.com

 

The Fed's Strange Takedown of Citigroup Bank regulation isn't supposed to work this way

http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=6703&ArticleTypeID=2

 

[ourkid8]

Citi needs to go back to basic in regards to taking in deposits and lending since their US P&C operations requires a makeover.  (However - Citi does have a large cards / transactional business)  I would follow the US Bancorp model and break this company up in numerous pieces:

 

- US P&C

-Wholesale global

-IPO Banamex

-Sell / spin-off all the remaining international P&C operations

 

This will significantly simplify the story and push the stock towards book value.  In regards to the controls, they can all focus on their respected regulators. 

 

Tks,

S

 

I strongly believe the board should now consider splitting this company up.  It seems too big to manage as it has now failed two years in a row.  Management and the board have failed in their fiduciary responsibility to shareholders.  Let's hope this is now on the table.

 

Tks,

S

 

how would you split it up?

[rpadebet]

From Tom Brown at Bankstocks.com

 

The Fed's Strange Takedown of Citigroup Bank regulation isn't supposed to work this way

http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=6703&ArticleTypeID=2

 

I really don't get all this talk against the Fed's actions. In someways shareholders who want to protect their investment for the long term must be thanking the Fed for doing what they did, because they are forcing management to make some changes which shareholders for a long time haven't been able to get done.

 

Remember this particular bank has got into trouble in almost every crisis around the globe in past couple of decades. It was a direct result of empire building and poor integration after the acquisitions. Back in the day, Jamie Dimon was supposedly Sandy Weil's operations guy who did the unglamorous work on Mr. Weil's acquisitions by reducing overlap, integrating IT etc. Once he was fired, the empire building continued, but the integration was never properly done. There have been cases where certain groups had co-heads in place to avoid making the tough decision of choosing one.

 

After their near death experience in 2008, one would have hoped a lot of changes would take place to improve the risk and organizational culture. But they again took the relatively easy way out by creating Citi Holdings and allowed it to run off. Fed cut their funding costs and lo and behold they started printing money again. The tough work done in BAC like the significant cost cutting, was not done here. The Fed is saying, eventually they will have to do it or hold a lot more capital against their loans  to avoid becoming a systemic risk again.

 

From a shareholder's perspective I feel if they atleast start doing the integration now, reduce the bureaucracy and improve the risk management, it could add far more to their intrinsic value over the long term than dividends or buybacks. Just the cumulative amount of losses like Banamex avoided by prudent lending practices and tighter controls could add significantly to the book value.

 

I am happy the Fed is forcing the management to make some tough decisions this way. I just hope they come up with some real changes this time rather than doing for outward appearances again.

 

[rpadebet]

I am sure many know about this story, but for those interested in some old Wall Street soap opera on how Citi was put together. A decent friday afternoon read..

 

http://money.cnn.com/2009/09/16/news/companies/dimon_mcdonald_duff.fortune/index.htm?postversion=2009091712

 

http://money.cnn.com/2009/09/17/news/companies/dimon_mcdonald_duff2.fortune/index.htm?postversion=2009091810

 

http://nymag.com/news/features/45320/

[Rabbitisrich]

Citibank was arrogant, gamed the system, & have just leant that they are nowhere near as good as GS.

 

They were called on fudging the numbers, which is largely expected; but Citibank risk management has to be either incompetent, or trying to hide a very large hole, to screw up this badly. It would appear that regulatory discussion had been going on for some time, getting worse, & that regulators have finally had it with the BS

 

The Mexico issue last month was not a misdemeanor, it was a material loss of control. Senior management would have been aware, as it was occurring, & deliberately chose to look away. Same issue as was the case with Libor fixing.

 

Agreed, and the pushback from investors shows an underappreciation of the Banamex issue. It's great that the financial magnitude appears to be manageable, but it shows that management lost control of the struggle with information asymmetry that is inherent to the Citi model. How would headquarters handle rogue agents in Korea, where a business entity might be a hodgepodge of interests from Chaebol family members, and financing self-dealing is part of relationship management? Or Japan and Hong Kong where private lending might represent a significant off-balance sheet interest? Corbat has to go into Maurice Greenberg mode, checking up on foreign based executives and letting them know that he knows their numbers front to back, and that he is constantly assessing their performance.

[alertmeipp]

There are systems to do just that. Hence, the platform and process comments. I think they know, they just need more time.

[bennycx]

1 year is not enough time?

[alertmeipp]

I think depends on how bad it was and how staffs were resist to change?

 

I know MS takes 2-3+ years to integrate MSWM with SB.

[CorpRaider]

Whitney thinks Corbat is excellent:

 

[fareastwarriors]

Stress-Test Rejection Means Citi Investors Face a Wait for Cash

 

 

 

Dividends and Stock Buybacks Are Unlikely to Change Before 2015 After Fed Nixed Bank's Plan

 

 

http://online.wsj.com/news/articles/SB10001424052702304688104579467803030978762?mod=WSJ_hp_LEFTWhatsNewsCollection&mg=reno64-wsj

[Rabbitisrich]

There are systems to do just that. Hence, the platform and process comments. I think they know, they just need more time.

 

Part of that process should be personal respect for Corbat and the people at headquarters. If foreign based officers view headquarters as an occasional disruption that otherwise leaves them alone as long as they fulfill certain metrics, then culture gaps get bigger. It's not like Banamex's are to be expected. But Banamex is a symptom that wasn't noticed until after local regulatory actions.

[BargainValueHunter]

Interesting chart:

 

http://static.cdn-seekingalpha.com/uploads/2014/3/30/20858741-13962359577674477-Jeremy-LaKosh.jpg

 

Credit: Jeremy LaKosh

 

from his article @:

 

http://seekingalpha.com/article/2117273-citi-has-tremendous-upside-potential

[gary17]

I wonder if a safer way to own citi is via warrants or leaps, which in theory limits the downside and could potentially have good upsides.

 

Interesting chart:

 

http://static.cdn-seekingalpha.com/uploads/2014/3/30/20858741-13962359577674477-Jeremy-LaKosh.jpg

 

Credit: Jeremy LaKosh

 

from his article @:

 

http://seekingalpha.com/article/2117273-citi-has-tremendous-upside-potential

[fareastwarriors]

Former Citigroup co-chief John Reed warns of ‘managerial turmoil’

 

 

 

 

John Reed, the former co-chief executive and architect of the modern day Citigroup, said “managerial turmoil” at the sprawling global bank had hindered its ability to secure the Federal Reserve’s approval for its 2014 capital plans.

“Having three or four CEOs in the last decade hasn’t helped,” Mr Reed told a conference in Boston on Monday.

 

 

 

 

The bank has been “unable to create what the Fed is looking for and when you’re talking about an institution that is large in size, diverse in activities, and has gone through a certain amount of managerial turmoil, you can well imagine that it was very difficult for them to respond to the request that they got,” Mr Reed said.

Citi declined to comment.

 

Citi has been in the spotlight after it was the only major US bank to have its capital plan for higher share buybacks and dividends blocked by the Federal Reserve on March 26. The bank’s previous chief executive, Vikram Pandit, was ousted after Citi first failed the Fed’s stress tests two years ago.

 

The Fed objected to Citi’s 2014 plans on a “qualitative” basis despite the bank passing the necessary “quantitative” requirements on capital and leverage ratios. Three non-US bank units failed on the same count while Utah-based Zions Bancorp also had its plan rejected after missing the minimum capital requirement.

In Citi’s case, the Fed cited “inadequate” improvement in areas previously flagged and found fault with the bank’s ability to estimate revenue and loss projections under a stress scenario for “material parts of the firm’s global operations”.

 

The failure has raised questions about Citi’s ability to oversee its complex international reach and came as a serious blow after efforts by chief executive Mike Corbat to rebuild the bank’s image and improve internal controls.

“Even if you know exactly what you want to do, to make sure it happens throughout the organisation is an amazingly difficult task,” Mr Reed said.

.

 

 

The Fed’s objection followed the bank’s announcement in March that it and the US unit of its Mexican business, Banamex, had received subpoenas from US regulators over compliance with the Bank Secrecy Act and anti-money laundering controls. Banamex had already been in the headlines after Citi said it had found an alleged fraud at the unit, sparking concerns over its global governance.

Citi had planned a $6.4bn buyback programme by the first quarter of 2015 and intended to increase its quarterly dividend from 1 cent to 5 cents. Investors are waiting to see how the bank responds to the Fed.

 

This year’s objection has sparked criticism from within the bank itself as well as frustration from shareholders who were not expecting the news.

Mr Reed, who has called for the reintroduction of Glass Steagall – the act that split deposit-taking institutions from riskier banking activities – said “the industry would be better structured if we took managerial issues into account and separated those who primarily intermediate capital markets from those that are traditional banks”.

 

As chief executive of Citicorp in the 1980s and 1990s, Mr Reed worked to create a “one-stop shop” selling many different products and took the bank into its historic merger with Travelers Group to form Citigroup in 1998.

 

 

http://www.ft.com/intl/cms/s/0/da3fbff0-b914-11e3-98c5-00144feabdc0.html#axzz2xejYOZzb

[Guest wellmont]

a breakup of citi would be very good for the stock.  8)

[BargainValueHunter]

I feel we are entering a new golden era of tech IPOs.

 

Why not a golden era of financial IPOs?

 

What would be bad about spinning off several large chunks of the "Group" portion of "Citi"?

[jch548]

Isn't it just a matter of time before the likes of Loeb, Ichan and Ackman push for a breakup. I can almost see Ackman starting a leveraged C fund telling his investors of 100% upside and then pushing out a 300 page sum of the parts C thesis.

[fareastwarriors]

I feel we are entering a new golden era of tech IPOs.

 

Why not a golden era of financial IPOs?

 

What would be bad about spinning off several large chunks of the "Group" portion of "Citi"?

 

It's coming...slowly.. Santander's US consumer business

GE capital's consumer finance unit

and others I can't remember.