<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Citigroup's third US rescue may not be its last
</TR><!-- headline one : end --><TR>Bank will continue to incur huge losses this year despite latest move, say analysts </TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
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THE UNRAVELLING
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->New York - The United States government's third attempt to help rescue Citigroup will not stanch its losses, which will continue to swell and may lead the bank to require more money in the coming months, according to analysts.
On Friday, Citigroup announced it planned to swop up to US$52.5 billion (S$80.2 billion) of its preferred stock, including US$25 billion of the US$45 billion held by the US government, for ordinary shares.
The Government of Singapore Investment Corporation (GIC) agreed to convert all its US$6.88 billion of preferred stock to common shares for an 11 per cent stake in the bank.
The move did not furnish Citigroup with new money, although it reduced expenses by eliminating dividends on preferred stock. Instead, it converted privately placed preferred shares into common stock, which would absorb the first hit in the event of further losses, at an above-market-value price of US$3.25.
The bank's common shares plunged 40 per cent to US$1.50 on Friday, their lowest level since November 1990. Based on this closing price, GIC's unrealised loss on its Citigroup investment would be about US$3.73 billion.
Citigroup's publicly traded preferred shares, however, reversed a recent sharp sell-off on Friday, as investors bet the government's latest move to bolster the company would protect dividends on preferred stock. One group of preferred shares leapt 33.5 per cent to US$8.13, while another group climbed 49.4 per cent to US$15.75.
'Our belief is that the Citibank trust preferreds will still continue to pay dividends and will not be forced to convert to common,' said Mr Tim Ghriskey, chief investment officer of Solaris Asset Management.
Mr Vikram Pandit, 52, Citigroup's chief executive officer, told investors on Friday that increasing tangible common equity to as much as US$81 billion from US$29.7 billion should 'take the confidence issues off the table' regarding the company's ability to absorb losses.
Still, Citigroup, which lost US$27.7 billion last year, was expected to lose US$1.24 billion in the first half of the year, according to estimates compiled by Bloomberg.
'There's no difference here,' said Mr Christopher Whalen, the co- founder of Institutional Risk Analytics, a risk-advisory firm. 'It won't fix revenue, and you're still going to see loss rates.'
Goldman Sachs analysts recommended that investors avoid Citigroup shares because 'it is unclear whether this is the last round of capital restructuring, which means that existing equity may be further diluted in the future'.
Instead of boosting confidence, the move led Moody's Investors Service to cut its senior debt rating for Citigroup to A3 from A2 and prompted Standard & Poor's (S&P) to change its outlook on the bank's debt to 'negative' from 'stable'.
'Citi will face a tough credit cycle in the next two years, which will likely result in weak and volatile earnings,' S&P analyst Scott Sprinzen wrote. 'We cannot rule out the possibility that further government support may prove necessary.'
Some analysts and investors were more optimistic.
Mr David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said the transaction fortified the bank's balance sheet, and he expected the stock to rise back to US$3 'once the emotion of the moment passes'.
Representative Charles Rangel, a Democrat from New York who serves as chairman of the House Ways and Means Committee, expressed the anxieties of many: 'The administration and the past administration have tried so many different ways that we can only hope and pray that this time they get it right. It seems like with the banks, it is a never-ending thing.'
Bloomberg, Reuters
No rest for the bank that 'never sleeps' >>Think Page 27
Dark days ahead
'Citi will face a tough credit cycle in the next two years, which will likely result in weak and volatile earnings. We cannot rule out the possibility that further government support may prove necessary.'
STANDARD & POOR'S ANALYST SCOTT SPRINZEN
Hoping for the best
'The administration and the past administration have tried so many different ways that we can only hope and pray that this time they get it right. It seems like with the banks, it is a never-ending thing.'
REPRESENTATIVE CHARLES RANGEL, a Democrat from New York who serves as chairman of the House Ways and Means Committee
</TR><!-- headline one : end --><TR>Bank will continue to incur huge losses this year despite latest move, say analysts </TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
THE UNRAVELLING
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->New York - The United States government's third attempt to help rescue Citigroup will not stanch its losses, which will continue to swell and may lead the bank to require more money in the coming months, according to analysts.
On Friday, Citigroup announced it planned to swop up to US$52.5 billion (S$80.2 billion) of its preferred stock, including US$25 billion of the US$45 billion held by the US government, for ordinary shares.
The Government of Singapore Investment Corporation (GIC) agreed to convert all its US$6.88 billion of preferred stock to common shares for an 11 per cent stake in the bank.
The move did not furnish Citigroup with new money, although it reduced expenses by eliminating dividends on preferred stock. Instead, it converted privately placed preferred shares into common stock, which would absorb the first hit in the event of further losses, at an above-market-value price of US$3.25.
The bank's common shares plunged 40 per cent to US$1.50 on Friday, their lowest level since November 1990. Based on this closing price, GIC's unrealised loss on its Citigroup investment would be about US$3.73 billion.
Citigroup's publicly traded preferred shares, however, reversed a recent sharp sell-off on Friday, as investors bet the government's latest move to bolster the company would protect dividends on preferred stock. One group of preferred shares leapt 33.5 per cent to US$8.13, while another group climbed 49.4 per cent to US$15.75.
'Our belief is that the Citibank trust preferreds will still continue to pay dividends and will not be forced to convert to common,' said Mr Tim Ghriskey, chief investment officer of Solaris Asset Management.
Mr Vikram Pandit, 52, Citigroup's chief executive officer, told investors on Friday that increasing tangible common equity to as much as US$81 billion from US$29.7 billion should 'take the confidence issues off the table' regarding the company's ability to absorb losses.
Still, Citigroup, which lost US$27.7 billion last year, was expected to lose US$1.24 billion in the first half of the year, according to estimates compiled by Bloomberg.
'There's no difference here,' said Mr Christopher Whalen, the co- founder of Institutional Risk Analytics, a risk-advisory firm. 'It won't fix revenue, and you're still going to see loss rates.'
Goldman Sachs analysts recommended that investors avoid Citigroup shares because 'it is unclear whether this is the last round of capital restructuring, which means that existing equity may be further diluted in the future'.
Instead of boosting confidence, the move led Moody's Investors Service to cut its senior debt rating for Citigroup to A3 from A2 and prompted Standard & Poor's (S&P) to change its outlook on the bank's debt to 'negative' from 'stable'.
'Citi will face a tough credit cycle in the next two years, which will likely result in weak and volatile earnings,' S&P analyst Scott Sprinzen wrote. 'We cannot rule out the possibility that further government support may prove necessary.'
Some analysts and investors were more optimistic.
Mr David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said the transaction fortified the bank's balance sheet, and he expected the stock to rise back to US$3 'once the emotion of the moment passes'.
Representative Charles Rangel, a Democrat from New York who serves as chairman of the House Ways and Means Committee, expressed the anxieties of many: 'The administration and the past administration have tried so many different ways that we can only hope and pray that this time they get it right. It seems like with the banks, it is a never-ending thing.'
Bloomberg, Reuters
No rest for the bank that 'never sleeps' >>Think Page 27
Dark days ahead
'Citi will face a tough credit cycle in the next two years, which will likely result in weak and volatile earnings. We cannot rule out the possibility that further government support may prove necessary.'
STANDARD & POOR'S ANALYST SCOTT SPRINZEN
Hoping for the best
'The administration and the past administration have tried so many different ways that we can only hope and pray that this time they get it right. It seems like with the banks, it is a never-ending thing.'
REPRESENTATIVE CHARLES RANGEL, a Democrat from New York who serves as chairman of the House Ways and Means Committee
