Citigroup\'s News Is Bad News

Citigroup just announced a "grand" plan to sell 20% of its assets. That's another warning sign after AIG's ER last night. Here is why?
1. Citigroup has been trying to raise cash by selling more shares recently. A sign of cash is desperately needed. Selling shares to raise cash at this time is actually a rip off to the share holders as the already weakened share price will be further diluted again. Why do they need cash so badly? They are seeing problems coming down the road very soon.
2. Citigroup's "GRAND" plan to sell such huge amount of assets, on the surface, it sounds like a plan of its new CEO to trim Citigroup's fat so that it can position itself for long term growth. If this happens in a good time, yes, we might trust his words. However, selling assets in the midst of the financial crisis? That does not make any sense at all. Very simple, you would not get a good deal from those asset sales under such market condition. It's just like you own a lot of real estate properties right now and you told the world that you are financially solid and then, you turn around to sell 20% of your properties at a deeply discounted price at this housing market down turn. If you are really financially solid, you should be looking for good properties to buy instead of selling your assets.

For those who feel that Citigroup's stock price is cheap at this price, please wake up. Why?
1. Do you feel other financial firms will buy the bad assets from Citigroup? Obviously not. That implies that, Citigroup will sell their good assets. After selling the good assests, the current liabilities and debt will not go away. Even if some of the debt is offset by the asset sales, the balance sheets of Citigroup will be weakened by the good asset sales. That would eventually be reflected to Citigroup's share price, i.e., the share price should move lower from here.
2. Through the asset sales process, those buyers will dig around the numbers to make sure that, those 400 billion assets do not contain a bomb. And based on the way all those derivative intruments being packaged, we will be surprised that there are no bombs or land mines embedded within those 400 billion assets at all.

Yes, the worst of the financial crisis might be over. And my idol Warren Buffet has said that, thus I believe it. However, it does not mean that, the crisis is over. As a matter of fact, it's far away from over yet. Financial sector is like a patient who just went through a stroke. Doctor Ben did whatever he could to save that patient's life. However, we all know the effect of a stroke and we all know that it's a long and painful recovery. Yes, eventually, this patient Financial will walk again. But folks, it takes time. And as investors, it takes patience. After all, we all wish patient Financial to have a fully recovery. A sick Financial will not serve any good to all of us.



I have been holding Citigroup as my long term holdings for years and once I saw the fundamenal starting to change last year, I sold all my shares at mid 40s. I told couple of my friends who worked with Citigroup for years and accumulated a lot of ESPP shares to sell. And they would not listen. What can I do?



I will buy Citigroup shares again in the future. But not now. It's still too pricy for my taste.