Billions more wiped off Citigroup shares

  • Market jumps on hopes of new treasury secretary
  • Boost fails to help US banking giant

Wall Street ended a volatile week with renewed confidence last night, after reports that Barack Obama has chosen Timothy Geithner, the head of the New York Federal Reserve, as his treasury secretary.

As speculation mounted over Geithner’s nomination, shares rebounded. The Dow Jones industrial average recorded a 494-point gain on the day as stocks surged by 6.5% to close above the psychologically important 8,000 level at 8046.42. It was still 5% down for the week, however, as worries persist about the global economic slowdown.

Geithner, 47, has always been a favourite to take the top job and his appointment is expected to be announced by the Obama camp in the next 24 hours.

Banking stocks still suffered, though, despite the market’s abrupt recovery.

Citigroup, once the world’s biggest banking group, saw another $5bn (£3.35bn)wiped off its value after an emergency board meeting failed to come up with any initiative to stem the unprecedented flight of investors. Shares fell to $3 after the bank’s chief executive, Vikram Pandit, ruled out selling its retail stockbroking arm, Smith Barney, in an attempt to stop the rout.

Shares in Citigroup have lost more than half their value this week since Pandit announced plans on Monday to sack 52,000 workers. Measures by the bank and its biggest investors to reverse the share price decline, from a level of $54 two years ago, have all failed.

However, a Citigroup source within Pandit’s inner circle, defended the bank last night, saying the sinking share price “has nothing to do with our viability”. The source added that it was of no consequence if the price fell to zero.
(Obviously an expert!…)

“This is all about market perception,” she said, claiming that the market was wrong. “We are the same as everybody else. Our stock price is declining but so is everybody else’s.”
(…and a great observer too!)

The executive added that talk of a government bail-out or nationalisation was misguided. “This is not the same as Lehman Brothers,” she said, referring to the Wall Street bank that collapsed in September. Citi has no liquidity issues” and so did not need government help.

Analysts are concerned that Citigroup has more than $100bn of toxic, debt-related assets on its books and may need to raise as much again in order to keep its balance sheet in check.

But the Citi executive said this was another false perception in the market. “We are very comfortable,” she said. “We have reached a very different conclusion to the market. We have no liquidity problems at all.”

The board is nevertheless considering all its options. Pandit called an emergency meeting with staff at 8am in New York yesterday before a full board meeting to confront the collapsing share price. The board wants Citi to consider either a break-up, a merger with another company, or a fire sale of assets and divisions. Pandit is believed to have told his closest lieutenants “everything is on the table”.

It is understood that teams of executives within Citigroup had begun drawing up plans for the emergency sale of the Smith Barney retail brokerage, the global credit card division, and the transaction services unit. Shares rose briefly as rumours of the emergency plans leaked into the market. But within minutes it emerged that Pandit told staff he was opposed to a break-up of the company and had no plan to sell Smith Barney.

The conflicting reports added to the confusion and fear already stalking the market and sparked a further steep sell-off in Citigroup shares.

Striking a deal to sell all of Citigroup would be fraught with problems. The banking group is huge, spanning the globe with more than 350,000 employees. Morgan Stanley, the former Wall Street brokerage that recently became a commercial bank, held preliminary merger talks with Citi in September when its own share price was under pressure. Pandit spent much of his career at Morgan and is close to John Mack, the Morgan chief executive. Sources said talks have not been rekindled. A source close to Mack said the bank had no interest in doing a deal with Citi.

James Doran in New York
Saturday November 22 2008 00.01 GMT

Source: The Guardian

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