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gordoffh

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Citigroup Fights to Recover From 'Stress Test' Failure

 

CEO Michael Corbat Revamps Approach to Risk Assessment After Failing Grade From Federal Reserve

 

 

 

http://online.wsj.com/articles/citigroup-fights-to-recover-from-stress-test-failure-1403291332?mod=WSJ_hp_LEFTTopStories

 

So many things to fix, trouble but also potential.

 

 

 

He has a printout of Must-Win Battles in his office. On his iPad he keeps the Fed's 25-page explanation of why Citigroup failed the stress test.

 

Failure isn't an option on the next year's test, he said. If Citigroup passes the all-important Fed hurdle, Mr. Corbat would gain the latitude to carry out his restructuring plan and return capital to investors who have hung on to the bank's shares through the tough times.

 

But he has told Citigroup Chairman Michael O'Neill that if his efforts fall short and the bank does flunk again, "I'll put on my jacket and walk out the door."

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  • 2 weeks later...
Citigroup and the Justice Department are nearing a deal that could cost the bank roughly $7 billion to settle a civil investigation into the sale of mortgage investments, people briefed on the matter said on Tuesday.

 

 

 

 

 

http://dealbook.nytimes.com/2014/07/08/citi-is-said-to-be-close-to-settling-inquiry-into-mortgage-securities/?_php=true&_type=blogs&module=BlogPost-Title&version=Blog%20Main&contentCollection=Legal/Regulatory&action=Click&pgtype=Blogs&region=Body&_r=0

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Makes me wonder just what exactly Orszag does for Citi to earn $4M/year. Hopefully a little more than writing Bloomberg View editorials.

 

 

He probably actually earns only $2.4m or less.  There are people at home doing absolutely nothing getting a slice of the $1.6m he gives up to the government.

 

Meanwhile, you get stuck in the customs line for a long time because they don't have enough money to fully staff it -- they're blowing it all on people getting paid to do nothing.

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Citigroup is one of the last no-brainers left in the market, even though it is less loved than AIG and BAC by most investors. Tangible book continues to grow at the rate of $1 per quarter, while the stock continues to drift downwards. Aggressive investors should sell $45 puts expiring in Jan 2016 and receive $4.30 per share and at the same time buy 2 LEAP calls with a strike price of $57.5 also expiring at Jan 2016 for $1.90, receiving a net investment of about $0.50 upfront. The probability of losing money on the shorted put leg is so minimal, as the stock should be trading below $40.70 to loss money. Tangible book value unadjusted for share buybacks should be around $64.5 by the end of 2015, so assuming that Citigroup's p/tbv ratio converges to 1 by the end of 2015, the stock should be trading in the low to mid 60s. Let's say the stock trades at $65 in Jan 2016, you would have made ($7.5-$1.9)*2 =$ 11.2 on the calls, plus another $4.30 on the worthless puts. It is a very nice trade to just gradually put over the next few months, starting at these prices. I would recommend to ignore the mark-to-market losses on either side of the trade, and stick with the 18 month end goal. I think investors are giving Bank of America too much and Citigroup too little credit for their respective turnarounds. There could be additional upside if ROE expands faster than expected, Citi Holdings wind down quicker than expected and if Citigroup is allowed to add to its share buyback program by the Fed.

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  • 3 weeks later...

I just bought a 7% starter position in C. I asked in the apple forum why apple one month ago was better then C and well I think C is better buy then apple so bought it instead :D

Reason why I bought it is Steven Romick, Irving Kahn, Dave Sather. As its one off the most bought stocks of all the gurus and I don't own any banks after I sold BAC at 17.40.

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