http://www.marketwatch.com/News/Story/citi-shares-dip-below-1/story.aspx?guid={35774262-F800-419E-8566-044F32856AD7}
Citi shares dip below $1; economy key to any recovery
By Matthias Rieker
Last update: 2:42 p.m. EST March 5, 2009
Citigroup Inc. became the first major banking company whose stock slid below $1 during this financial crisis. The stock hit 97 cents Thursday, the lowest Citi has traded ever and sending chills through investors, before recovering to $1.02. Despite the dismal stock market, the $1 mark is still a psychological threshold.
Citi's stock is unlikely to find firm footing for at least a month, when it completes the conversion of what it hopes will be $27.5 billion of preferred stock and trust preferred securities into common stock. Until then, arbitrage players will seek to exploit the difference between the premium Citi is paying for the conversion and the current stock price, executives and analysts say.
Citi doesn't face any immediate risk of delisting because of a temporary suspension of New York Stock Exchange rules. But any real recovery in the stock will require investors to anticipate an economic turnaround - a hope that keeps getting pushed farther into the future.
On Thursday, a Citi spokesman declined to comment on the stock price.
Jeffery Harte, an analyst with Sandler O'Neill & Partners, said, "It is hard to interpret what is going on" with Citi's stock price "because you have all these arbs in."
Even the fall below $1 doesn't threaten Citi's survival, he said. Other banks are also dealing with tiny stock prices; Fifth Third Bancorp flirted with $1 a share in recent weeks but now trades at $1.39. Bank of America Corp. and Regions Financial Corp. are trading around $3.
Citi traded at more than $58 in 2000 and, after a severe drop shortly thereafter, recovered to a high of $55.70 in December 2006. The company reported its best quarterly results ever in the summer of 2007 - only weeks before the financial crisis hit.
A massive loss of confidence in management has plagued the bank for almost two years and has led the company to raise capital - first from private investors and the twice from the government - and other measures such as restructuring its operations, selling businesses and replacing most of its top executives. So far the moves haven't worked.
When Citi's stock started trading around $3 late last year, alarm bells rang shrilly for the board and management. The company decided to more aggressively define what it considers its core business, hoping investors would find confidence in Citi's focus on traditional lending and deposit gathering worldwide.
The move stabilized the stock but only briefly. The stock market, the economy and Citi's shares worsened. Last week it unveiled a plan to convert preferred shares into common stock to improve tangible common equity ratios. Rather than calming shareholders, it led to yet another round of selling.
Executives had expected shares would fall initially because the exchange offered arbitrage opportunities.
Citi faces no immediate risk of delisting if it closes below $1. The New York Stock Exchange has suspended until June 30 rules requiring companies whose shares trade below $1 to prepare a plan to increase their stock price within a month, and execute it within a given time frame. Even if Citi continued to trade below $1 and the NYSE does not extend the rule, Citi would have until the end of the year to improve.
Sandler O'Neill's Harte said Citi's fate rests on the overall market sentiment and the economy. "You need an environment favorable enough to make the mark-to-market adjustments stop, and make the massive reserve building stop," he said.
Bank stock investors usually start buying well before the economy begins to recover. If investors believe that the economy might start growing next year and Citi might benefit from it, Harte said a recovery of Citi's stock could be near.
-Contact: 201-938-5400
End of Story
Citi shares dip below $1; economy key to any recovery
By Matthias Rieker
Last update: 2:42 p.m. EST March 5, 2009
Citigroup Inc. became the first major banking company whose stock slid below $1 during this financial crisis. The stock hit 97 cents Thursday, the lowest Citi has traded ever and sending chills through investors, before recovering to $1.02. Despite the dismal stock market, the $1 mark is still a psychological threshold.
Citi's stock is unlikely to find firm footing for at least a month, when it completes the conversion of what it hopes will be $27.5 billion of preferred stock and trust preferred securities into common stock. Until then, arbitrage players will seek to exploit the difference between the premium Citi is paying for the conversion and the current stock price, executives and analysts say.
Citi doesn't face any immediate risk of delisting because of a temporary suspension of New York Stock Exchange rules. But any real recovery in the stock will require investors to anticipate an economic turnaround - a hope that keeps getting pushed farther into the future.
On Thursday, a Citi spokesman declined to comment on the stock price.
Jeffery Harte, an analyst with Sandler O'Neill & Partners, said, "It is hard to interpret what is going on" with Citi's stock price "because you have all these arbs in."
Even the fall below $1 doesn't threaten Citi's survival, he said. Other banks are also dealing with tiny stock prices; Fifth Third Bancorp flirted with $1 a share in recent weeks but now trades at $1.39. Bank of America Corp. and Regions Financial Corp. are trading around $3.
Citi traded at more than $58 in 2000 and, after a severe drop shortly thereafter, recovered to a high of $55.70 in December 2006. The company reported its best quarterly results ever in the summer of 2007 - only weeks before the financial crisis hit.
A massive loss of confidence in management has plagued the bank for almost two years and has led the company to raise capital - first from private investors and the twice from the government - and other measures such as restructuring its operations, selling businesses and replacing most of its top executives. So far the moves haven't worked.
When Citi's stock started trading around $3 late last year, alarm bells rang shrilly for the board and management. The company decided to more aggressively define what it considers its core business, hoping investors would find confidence in Citi's focus on traditional lending and deposit gathering worldwide.
The move stabilized the stock but only briefly. The stock market, the economy and Citi's shares worsened. Last week it unveiled a plan to convert preferred shares into common stock to improve tangible common equity ratios. Rather than calming shareholders, it led to yet another round of selling.
Executives had expected shares would fall initially because the exchange offered arbitrage opportunities.
Citi faces no immediate risk of delisting if it closes below $1. The New York Stock Exchange has suspended until June 30 rules requiring companies whose shares trade below $1 to prepare a plan to increase their stock price within a month, and execute it within a given time frame. Even if Citi continued to trade below $1 and the NYSE does not extend the rule, Citi would have until the end of the year to improve.
Sandler O'Neill's Harte said Citi's fate rests on the overall market sentiment and the economy. "You need an environment favorable enough to make the mark-to-market adjustments stop, and make the massive reserve building stop," he said.
Bank stock investors usually start buying well before the economy begins to recover. If investors believe that the economy might start growing next year and Citi might benefit from it, Harte said a recovery of Citi's stock could be near.
-Contact: 201-938-5400
End of Story
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