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A Very Merry Christmas for Citigroup

Posted December 14, 2009 by Matthew Denton

Stock performance expected to improve

While majority of analysts remained skeptical whether Citigroup can still recover from its bailout status, the bank silenced its critics when it successfully repaid its $20 billion Troubled Asset Relief Program fund. Citigroup has successfully managed to steer clear of government debt before the year ends and took off pay caps of its managers that was the subject of endless scrutiny by taxpayers and Washington, D.C.

APP.com reports, “Citigroup last week sold common stock to raise the cash it needed to repay $20 billion of the $45 billion stake the government held in Citigroup. But the Treasury postponed its own plans to begin selling its 34 percent stake in the company because it decided Citi’s stock price was too low…Kenneth Feinberg, the Obama administration’s pay czar, said in a letter to the company that the repayment removes Citigroup from restrictions on executive pay and bonuses that were imposed on companies receiving exceptional assistance from the $700 billion bailout fund.”

Here’s what I think about this recent Citigroup move.

First, it may be free from “strict” government control after this repayment but the Treasury Department still owns 7.7 billion shares of the bank’s stock and more than $3 billion worth of warrants. This means that in one way or another, the government still has some control over the investment bank albeit this time, there’d be less oversight than it used to have.

Second, it could spell disaster for those who bought the stocks and are not aware of Citi’s latest developments. BusinessWeek reports, “Citigroup probably will record its second straight annual net loss, according to the average estimate of analysts surveyed by Bloomberg. It reported a $27.7 billion loss for 2008, which eclipsed its previous two years of earnings. The way it’s been able to keep those assets on its books is by assuming it will earn enough taxable income in the future so it can use them all.” If you ask us, this is the Citigroup that once upon a time believed it could never be hit the by the recession today. So its taxable income can ruin the stockholders’ early party.

If this is what naysayers like me believe to be the bank’s shaky future, then Citi can prove us wrong one more time much like how they got out of government bailout.

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