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Friday 21 November 2008
Citigroup Explores Options, Including Sale Of Company
Executives at Citigroup Inc. (C), faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter.
Citigroup Explores Options, Including Sale Of Company
By DAVID ENRICH, WSJ 21 November 2008
Executives at Citigroup Inc. (C), faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter.
The internal discussions are at a preliminary stage and don’t signal that Citigroup’s board and management are backing down from their insistence that the New York company has ample capital, funding and strategic direction, these people said. But with the stock down another 26% Thursday, its worst one-day percentage decline ever, Citigroup officials have decided they need to reckon with a range of scenarios that were unthinkable only weeks ago.
Citigroup’s board of directors is scheduled to have a formal meeting Friday to discuss the options, according to a people familiar with the situation. Meantime, directors have been talking by phone about what could be done to reverse the stock’s slide.
Top executives were locked in meetings Thursday to hash out a stabilization strategy. A Citigroup spokeswoman said in a statement Thursday evening: “Citi has a very strong capital and liquidity position” and is “focused on executing our strategy,” which includes cutting expenses and selling assets. “We believe the benefits will be seen over time.”
With roots stretching back to 1812 and more than 200 million customer accounts in 106 countries, Citigroup is an icon of global capitalism. It is getting battered by the same financial storm that has already remade the face of Wall Street, forcing the sale of Bear Stearns Cos. and Merrill Lynch & Co. earlier this year, and triggering the bankruptcy filing of Lehman Brothers Holdings Inc.
Chief Executive Vikram Pandit and other Citigroup executives have told colleagues they are frustrated and befuddled by this week’s 50% stock decline. Investors have dumped bank stocks en masse on fears that economic woes will batter financial companies worse than previously expected.
JPMorgan Chase & Co. (JPM) shares slid 18% on Thursday, while Bank of America Corp. (BAC) fell 14%. Citigroup declined $1.69 to $4.71 in New York Stock Exchange composite trading at 4 p.m.
In Washington, Citigroup officials this week have been urging lawmakers and regulators to intervene by making it tougher for investors to place bets that the company’s share price will fall, a strategy known as short-selling, according to people familiar with the matter.
The company, along with representatives of other banks, is lobbying the Securities and Exchange Commission to reinstate the ban it temporarily imposed this autumn on short-selling of financial stocks, the people said.
“You would think the regulators would want to exercise some leadership and protect the integrity of the financial-services world,” said one person familiar with Citigroup’s lobbying efforts.
SEC Chairman Christopher Cox said he would hold a teleconference with international regulators on Monday to discuss short-selling and other matters. In a statement, he said it was essential that “there be close coordination among international markets to avoid regulatory gaps and unintended consequences.”
Specifically, he said regulators would “explore possible coordination” to tighten short-selling rules as well as disclosing short positions.
Meanwhile, Citigroup executives and directors are rushing to bolster the confidence of investors, clients and employees. Members of the board are hoping Citigroup can weather the storm by becoming more transparent with investors and easing anxiety that tens of billions of dollars in risky assets are lurking on the company’s books.
On Wednesday, in one move aimed at quelling the uncertainty about Citigroup’s exposure to risk, the company said it would buy $17.4 billion in assets from its structured investment vehicles, or SIVs, complex investment tools that first encountered trouble last year due to their mortgage-related holdings.
Executives in recent days have been telling traders, brokers and other employees to reach out to clients and tick off a list of factors that showcase Citigroup’s strength. On Thursday, for instance, executives in the wealth-management unit arranged a Friday-afternoon conference call for clients. A brochure that brokers were asked to share with clients promises that the call “will help you to better understand the current financial crisis.”
The sell-off in Citigroup shares has led executives to start laying out possible contingency plans. In addition to pondering a move to sell the entire company to another bank, executives have started exploring the possibility of selling off parts of the firm, including the Smith Barney retail brokerage, the global credit-card division and the transaction-services unit, which is one of Citigroup’s most lucrative and fast-growing businesses, the people said.
Pandit, an enthusiastic defender of Citigroup’s existing mix of businesses, is loath to pursue such an approach, the people said.
Thursday’s stock slide came despite the announcement by Saudi Arabian investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud that he will increase his holdings in Citigroup to 5%, adding that he supports the banking giant’s management.
“Prince Alwaleed began buying Citi shares as he strongly believes that they are dramatically undervalued,” according to an emailed statement from his office. His holdings are currently less than 4%, according to the statement.
In late September, hoping to deepen its pool of deposits and shed some risky assets, Citigroup agreed to buy Wachovia Corp. (WB) with backing from the U.S. government. But before the two banks could hammer out a formal merger document, Wells Fargo & Co. (WFC) swooped in with a higher bid, stunning Citigroup executives.
The Wachovia debacle turned out to be a turning point for Citigroup. The deal’s unravelling highlighted the paucity of other options for the company to pursue in an era when many banks are merging in order to survive. Few other banks that Citigroup can afford to buy would bring similar levels of deposits, the lifeblood of banks.
In recent weeks, Citigroup has been negotiating a possible acquisition of Chevy Chase Bank, which is a fraction of Wachovia’s size, according to people familiar with the matter.
With Citigroup’s stock declining, the Chevy Chase deal is now in danger of falling apart, the people said, because Citigroup had hoped to pay for the acquisition in stock instead of cash. Other bidders recently have emerged for Chevy Chase, including Capital One Financial Corp. (COF), BB&T Corp. (BBT), JPMorgan Chase and SunTrust Banks Inc. (STI), possibly driving up the price of a potential deal, the people said.
Citigroup executives also are weighing the possibility of selling the company or merging with a rival. Some analysts have pointed to Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) as potential suitors.
As for Morgan, Pandit spent most of his career there and still keeps in touch with Morgan executives including CEO John Mack. But people familiar with the matter said that Morgan wasn’t weighing a bid and hadn’t spoken to Citi about a deal recently.
Morgan and Citi held preliminary discussions about a merger in September when Morgan Stanley shares were under intense pressure. Morgan covets the bank deposits and the added brokerage business that Citigroup would bring, but Morgan would mainly bring to Citigroup an investment bank that greatly overlaps with its own business.
Goldman Sachs is in much the same situation. It, too, would potentially look at pieces of Citi. But buying the entire company, and the liabilities that come with it, would be a lot to bite off.
1 comment:
Citigroup Explores Options, Including Sale Of Company
By DAVID ENRICH, WSJ
21 November 2008
Executives at Citigroup Inc. (C), faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter.
The internal discussions are at a preliminary stage and don’t signal that Citigroup’s board and management are backing down from their insistence that the New York company has ample capital, funding and strategic direction, these people said. But with the stock down another 26% Thursday, its worst one-day percentage decline ever, Citigroup officials have decided they need to reckon with a range of scenarios that were unthinkable only weeks ago.
Citigroup’s board of directors is scheduled to have a formal meeting Friday to discuss the options, according to a people familiar with the situation. Meantime, directors have been talking by phone about what could be done to reverse the stock’s slide.
Top executives were locked in meetings Thursday to hash out a stabilization strategy. A Citigroup spokeswoman said in a statement Thursday evening: “Citi has a very strong capital and liquidity position” and is “focused on executing our strategy,” which includes cutting expenses and selling assets. “We believe the benefits will be seen over time.”
With roots stretching back to 1812 and more than 200 million customer accounts in 106 countries, Citigroup is an icon of global capitalism. It is getting battered by the same financial storm that has already remade the face of Wall Street, forcing the sale of Bear Stearns Cos. and Merrill Lynch & Co. earlier this year, and triggering the bankruptcy filing of Lehman Brothers Holdings Inc.
Chief Executive Vikram Pandit and other Citigroup executives have told colleagues they are frustrated and befuddled by this week’s 50% stock decline. Investors have dumped bank stocks en masse on fears that economic woes will batter financial companies worse than previously expected.
JPMorgan Chase & Co. (JPM) shares slid 18% on Thursday, while Bank of America Corp. (BAC) fell 14%. Citigroup declined $1.69 to $4.71 in New York Stock Exchange composite trading at 4 p.m.
In Washington, Citigroup officials this week have been urging lawmakers and regulators to intervene by making it tougher for investors to place bets that the company’s share price will fall, a strategy known as short-selling, according to people familiar with the matter.
The company, along with representatives of other banks, is lobbying the Securities and Exchange Commission to reinstate the ban it temporarily imposed this autumn on short-selling of financial stocks, the people said.
“You would think the regulators would want to exercise some leadership and protect the integrity of the financial-services world,” said one person familiar with Citigroup’s lobbying efforts.
SEC Chairman Christopher Cox said he would hold a teleconference with international regulators on Monday to discuss short-selling and other matters. In a statement, he said it was essential that “there be close coordination among international markets to avoid regulatory gaps and unintended consequences.”
Specifically, he said regulators would “explore possible coordination” to tighten short-selling rules as well as disclosing short positions.
Meanwhile, Citigroup executives and directors are rushing to bolster the confidence of investors, clients and employees. Members of the board are hoping Citigroup can weather the storm by becoming more transparent with investors and easing anxiety that tens of billions of dollars in risky assets are lurking on the company’s books.
On Wednesday, in one move aimed at quelling the uncertainty about Citigroup’s exposure to risk, the company said it would buy $17.4 billion in assets from its structured investment vehicles, or SIVs, complex investment tools that first encountered trouble last year due to their mortgage-related holdings.
Executives in recent days have been telling traders, brokers and other employees to reach out to clients and tick off a list of factors that showcase Citigroup’s strength. On Thursday, for instance, executives in the wealth-management unit arranged a Friday-afternoon conference call for clients. A brochure that brokers were asked to share with clients promises that the call “will help you to better understand the current financial crisis.”
The sell-off in Citigroup shares has led executives to start laying out possible contingency plans. In addition to pondering a move to sell the entire company to another bank, executives have started exploring the possibility of selling off parts of the firm, including the Smith Barney retail brokerage, the global credit-card division and the transaction-services unit, which is one of Citigroup’s most lucrative and fast-growing businesses, the people said.
Pandit, an enthusiastic defender of Citigroup’s existing mix of businesses, is loath to pursue such an approach, the people said.
Thursday’s stock slide came despite the announcement by Saudi Arabian investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud that he will increase his holdings in Citigroup to 5%, adding that he supports the banking giant’s management.
“Prince Alwaleed began buying Citi shares as he strongly believes that they are dramatically undervalued,” according to an emailed statement from his office. His holdings are currently less than 4%, according to the statement.
In late September, hoping to deepen its pool of deposits and shed some risky assets, Citigroup agreed to buy Wachovia Corp. (WB) with backing from the U.S. government. But before the two banks could hammer out a formal merger document, Wells Fargo & Co. (WFC) swooped in with a higher bid, stunning Citigroup executives.
The Wachovia debacle turned out to be a turning point for Citigroup. The deal’s unravelling highlighted the paucity of other options for the company to pursue in an era when many banks are merging in order to survive. Few other banks that Citigroup can afford to buy would bring similar levels of deposits, the lifeblood of banks.
In recent weeks, Citigroup has been negotiating a possible acquisition of Chevy Chase Bank, which is a fraction of Wachovia’s size, according to people familiar with the matter.
With Citigroup’s stock declining, the Chevy Chase deal is now in danger of falling apart, the people said, because Citigroup had hoped to pay for the acquisition in stock instead of cash. Other bidders recently have emerged for Chevy Chase, including Capital One Financial Corp. (COF), BB&T Corp. (BBT), JPMorgan Chase and SunTrust Banks Inc. (STI), possibly driving up the price of a potential deal, the people said.
Citigroup executives also are weighing the possibility of selling the company or merging with a rival. Some analysts have pointed to Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) as potential suitors.
As for Morgan, Pandit spent most of his career there and still keeps in touch with Morgan executives including CEO John Mack. But people familiar with the matter said that Morgan wasn’t weighing a bid and hadn’t spoken to Citi about a deal recently.
Morgan and Citi held preliminary discussions about a merger in September when Morgan Stanley shares were under intense pressure. Morgan covets the bank deposits and the added brokerage business that Citigroup would bring, but Morgan would mainly bring to Citigroup an investment bank that greatly overlaps with its own business.
Goldman Sachs is in much the same situation. It, too, would potentially look at pieces of Citi. But buying the entire company, and the liabilities that come with it, would be a lot to bite off.
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