What Do YOU And Prince Al-Waleed bin Talal of Saudi Arabia Have In Common?

Prince Al-Waleed bin Talal of Saudi ArabiaDoes the photo ring a bell? No?

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:

chart of citigroup 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.

13 thoughts on “What Do YOU And Prince Al-Waleed bin Talal of Saudi Arabia Have In Common?

  1. Awesome post and brutally honest. It bothers me that the banks got away with raping and pillaging the average American and rewarded the top brass. Financial war crimes if you ask me.

  2. I agree and I like that you point out that they have been involved in every major scandal. Now if only I can figure out a way to reverse split my IRA.

  3. Before I read the line about the reverse split, I was going insane :). Now I feel better that I didn’t miss out on the best investment opportunity ever. I wish we gave the actual market a chance to work these economic problems out, but it probably would have caused a huge depression instead of just a recession.

    • Barb, I’m for intervention and bailout, though unpopular, was needed. What I dislike is that no one was held accountable.

  4. Great post…but it kind of ruined my day. How frustrating!

  5. I’m not a fan business Citi nor their credit cards (see my article below about Breaking up).

    Prince Al-Waleed bin Talal actually helped bail out Citi too. It was complicated, with a few of the previous CEOs (especially Sandy Weill) going over to convince the prince not to pull all of his money out much earlier in the game when Citi was worth something.

    I was thinking of buying in where the company was low, but I couldn’t find any value in doing it. And now even though management is supposed to be better under Vikram Pandit, I still see no value in jumping in currently, perhaps in the future things will change. I takes a while to remove the bad elements without totally breaking the business. We’ll see, Vikram Pandit is suppose to be better, but we’ll see…

    • Vikram Pandit is paying for the sins of his predecessors. Agreed. But rewarding bad behavior is not the way to go.

  6. I was not surprised to say the least when I found out that they were doing a reverse split.
    What a crock of bull. And I doubt that funds that wouldn’t invest before will jump at the chance just because the price is higher. The fundamentals stay the same. Nice write up

  7. I didn’t know I had this in common with a Saudi Prince. Thanks for the insight.

    Funny story. We had Saudi neighbors for a couple of years. Their very conservative culture was worlds apart from ours: I’m a Mr. Mom, and my wife is a Navy officer.

    Anyway, we tried to be the best of neighbors to each other. We arranged dinner parties, but I was never able to be in the same company as his wife, that is offensive to their cultural values. So I would BBQ, and my kids would take the food next door to them. The fllowing night, they would cook, and their kids would bring it over to us….an that’s as close as we could get to a sit-down dinner party.

    Not entirely related to Citi, but I thought I would share.

  8. Yay I have something in common with a Prince? Way to set my hopes up MC! Seriously, great post. Thankful the bailouts saved the world’s financial butt, but how can they turn around and use the funds for parties, jets, and insane bonuses? Boggles the mind. Great point about a psych play and making them more attractive for funds who are only interested in stocks above five bucks.

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