C Citi fail?

Citigroup (C) is not going to make it, at least not an an independent company. The FT has reported that the head of Goldman Sachs (GS) called Citigroup CEO Vikram Pandit to discuss a merger. Goldman had converted itself into a commercial bank. Maybe it was worried it would go the way of Morgan Stanley (MS). But, the Treasury has come up with capital for all the big financial firms, so the urge to do something has probably passed for the world's premier investment bank.

It is different for Citigroup. There things have gone from bad to worse.
Citigroup is not likely to make it as an independent company. It will not be a buyer. It will be sold.

If the bank's stock price and analysts covering the company are right, Citi's fate could be determined by the end of the year. Over the last month, shares in the bank are down by 40%. Rival JPMorgan (JPM) is off 2%. Wells Fargo (WFC) is up 10%. Citi's market cap is down to $66 billion. Bank of America's is nearly $100 billion.
In the last quarter Citi lost $2.8 billion, or $.60 per share, compared with a profit of $2.2 billion, or $.44, in the period a year ago. Revenue fell 23% to $16.7 billion Bank analyst Meredith Whitney, who has been right more often than not on bank stocks, says that troubles in Citi's consumer group will drive up its losses more than expected. She cut her earnings estimates on the bank to a 2008 loss of $2.87 per share and a loss of $2.65 in 2009. Citi may not have the capital to cover those losses even with the government's cash injection.
What Whitney did not factor in just a week ago is that the credit crisis and signals of a recession have become much worse in a matter of days. Mortgage defaults are likely to rise more sharply then they have been as people lose jobs. The consumer's ability to pay his credit cards debt will deteriorate sharply. Citi's investment banking business is dead as a doornail. Most LBO loans are dropping in value as each week passes.

Citi will not report Q4 earnings for almost three months. It may run into awful trouble before that. The Fed and Treasury are going to have to find a merger candidate. Most likely that will be JP Morgan (JPM) because Bank of America (BAC) and Wells Fargo (WFC) are already digesting big acquisitions. Or, the government may turn around and take a majority stake in the money center bank the way it did with AIG (AIG) where it has already provided $90 billion in loans.

Vikram Pandit will have failed. It may take a little while for that to become absolutely clear, but Wall St. can take it to the bank. Or, maybe not.
Douglas A. McIntyre

Citi - off the wire & into the fire

NEW YORK (AP) -- Citigroup Inc. Chief Executive Charles Prince is expected to step down soon from the helm of the nation's largest bank, which many shareholders and analysts say needs new leadership to extract itself from a mess of worrisome debt.
If he does resign, Prince, 57, would become the second CEO at a major U.S. financial institution to leave during this year's credit crisis, following Merrill Lynch's Stan O'Neal.

Citigroup's board is meeting Sunday, and Prince will offer his resignation then, The Wall Street Journal first reported Friday, citing unnamed people familiar with the situation. The New York Times also reported Prince will resign and said the company might name former Treasury Secretary Robert Rubin, who now chairs the bank's executive committee, as interim chairman.

Citigroup spokesman Michael Hanretta would not comment on the reports.

Prince became chief executive of Citigroup in October 2003. Many shareholders have blasted him openly for much of his tenure, as Citigroup's stock lagged its peers. Shares closed Friday at $37.73, about 20 percent below where they were when Prince became CEO.

Prince's position looked especially shaky after the company on Oct. 1 estimated that third-quarter profit would decline about 60 percent to some $2.2 billion after seeing nearly $6 billion in credit costs and write-downs of overly leveraged corporate debt and souring home mortgages. At that time, Prince said the bank's earnings would return to normal in the fourth quarter.

But when Citigroup released its third-quarter results two weeks later, the write-downs and credit costs exceeded $6 billion, and Chief Financial Officer Gary Crittenden indicated the outlook going forward wasn't as upbeat as Prince had predicted.

Citigroup wasn't alone in its third-quarter turmoil, of course. When borrowers with poor credit stopped paying their mortgages, banks not only had to take losses on those subprime mortgages, they also saw instruments in their portfolios backed by mortgages plummet in value.

But Citigroup's stumbles were particularly grievous, given the bank's size, history and CEO, who has been telling shareholders for years to give his strategy a chance. Even in October, Prince said in a call to analysts: "I think any fair-minded person would say that strategic plan is working."

Analysts believe Citigroup has more losses ahead of it. Deutsche Bank analyst Mike Mayo -- who told Prince during a conference call after Citigroup's results were released that investors wanted a significant change in management -- estimated Thursday that Citigroup would have to write down another $4 billion.

In early October, the bank combined its investment banking and alternative investments businesses into one unit led by Vikram Pandit, who had led Citigroup's alternative investments unit. In that shuffle, Tom Maheras, co-CEO of the investment banking unit, left.

But at the time, Rubin and Saudi Arabian Prince Alwaleed bin Talal -- Citigroup's biggest individual shareholder and once a critic of Prince -- expressed their support for the bank's embattled CEO.

When asked if Alwaleed still supported Prince, his representatives on Saturday said he did not wish to comment on any media speculation.

By Madlen Read, AP Business Writer