Both you, as a US taxpayer and Prince Al-Waleed bin Talal are the largest shareholders of the world’s largest financial network, Citigroup!
You paid $45 billion in 2008 to bailout Citigroup from an imminent insolvency. That includes payment for the $50million Dassault Falcon 7X luxury corporate jet (with leather seats of course!) and bonuses ranging from $1 million to $10 million for each of 1,038 executives AFTER receiving the bailout money!
I don’t know about you, but the Prince is doing fine. The last I heard he was grateful for the bailout without which he would’ve lost most of his investment in Citi.
So how is Citi doing?
May 06, 2011: Closing price of C: $4.52
May 09, 2011: Opening price of C: $44.16
That is a miraculous recovery! What happened between May 6th and May 9th? Nothing actually. The stock market is closed on weekends! (May 7 & May 8 – Saturday & Sunday).
Citi pulled the oldest trick in the book by doing what’s called a reverse split. If you held 10 shares of Citi, it would be counted as 1 now. A 10 to 1 reverse split. But $44 a share definitely sounds better than $4 a share!
It does absolutely nothing to the worth of Citi. Purely a psychological play. The stock becomes less liquid with shares outstanding going from 29 billion to 2.9 billion and funds that shun stocks that trade below $5, might actually consider Citi now.
Citi also reinstated quarterly dividends of a penny per share.
Citi’s stock performance:
1 month return: -7.71%
3 month return: -14.9%
6 month return: -3.19%
YTD return: -12.2%
Here’s a chart of Citi since the reverse split:
In short, not very good.
Is Citi a buy?
In my opinion, no. Citi has eliminated 75,000 jobs since the bailout, most of whom were foot soldiers and rewarded the top management, the ones that actually caused this mess with bonuses. Citi has been involved in every major financial scandal the last decade along with the other three major banks in the US.
Stock investing is a simple concept really. If a company is rotten, it will be replaced by a more efficient entity. The core of Citi hasn’t changed. Rather than fixing what’s broken from the inside, Citi is simply trying to make the stock look good. Bonuses, lavish parties, corporate jets are fine if you have a healthy balance sheet. But if you are living on borrowed money, the first priority should be to get out of the red. If Citi cannot comprehend this, or even understand the seriousness of its crimes, long term, I don’t think this is a company that’ll survive as it exists today.
DISCLOSURE: The author does not directly hold any positions in Citi or any other US financial institution.