Thursday, November 08, 2007

Citi Banking woos...

As someone who was associated with CitiBank for many years, I don't like what is happening now. But again with bottom-up inside view of the company, I couldn't expect any better result. It took a while, but US equity investors finally woke up to reality.

Maybe it's because all signs increasingly point to a U.S. recession. Or the fact that more than a few companies are discovering that slowing demand at home matters more than supposedly booming economies overseas. Or the abrupt realization that the technology sector is sensitive to a slowdown in the financial services industry after all.

Then again, maybe it's the malignant cancer that's been festering for months, which has spawned growing turmoil in credit markets and a relentless parade of multi-billion dollar write-downs at banks, brokers, and other financial institutions.

Citigroup has averaged 52 million shares traded daily these past three months. Today, with no news announced, it traded 194 million shares. The most fascinating detail was it traded 100 million of those shares in the last hour with the stock rising from a $31.05 low to close at $32.90. That's major institutional buying that occurred.

We all know the news has been awful and more write-offs are coming in the 4th quarter. Investors expect that the 4th quarter write-offs had better be complete and without the "drip-effect" carrying into 2008.

Although this entire credit crisis is very complicated and full of advanced accounting principles, the "cash flow" of these mortgage portfolios is actually in pretty good shape. IT IS THE UNDERLYING VALUE of the securities that has been marked down. Citigroup made it clear this past Monday that even the higher quality BBB- to AAA -rated mortgage paper has been marked down by the rating agencies, thus causing the bulk of the write-offs.

We will see and know if the financial have indeed "put in their bottoms" over the next month or so, but I think it is safe to say that they are right at their respective bottoms or as close as close can be.

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