Here are the points of her exclusive interview with The Post:
- Pandit and his executives are completely naive if they think the share price is not important. Citigroup can continue down the same path it has traveled for the past year, foregoing the sale of major assets like Smith Barney or the credit-card business.
- Pandit is wrong; Citi will not be able to stay in its current form. Citigroup is in such a mess Stephen Hawking couldn't turn this company around. It has lost the most money of all the banks, and has the greatest leverage.
- Citi is wrong if they say they are adequately capitalized. No bank is adequately capitalized today and Citi is no exception.
- The company cannot raise capital; there are no buyers even if he [Pandit] wanted to sell Smith Barney
Prior to the above interview, On November 10, Meredith Whitney gave her outlook about Citigroup’s troubles, via Reuters:
Citigroup (C) is unlikely to be profitable for the next several years and needs to reinvent itself through steps such as acquiring a U.S. retail bank or shedding businesses, Oppenheimer analyst Meredith Whitney said on Monday.
The theory behind Citigroup was that its many financial services businesses could boost their revenue by selling products to one another's clients, but that does not seem to be happening because the company has not invested enough money in integrating different units' computer and risk management systems, Whitney said.
The theory behind Citigroup was that its many financial services businesses could boost their revenue by selling products to one another's clients, but that does not seem to be happening because the company has not invested enough money in integrating different units' computer and risk management systems, Whitney said.
"It would take Stephen Hawking four years to right that ship," Whitney said, referring to the brilliant physicist.
Meanwhile the economic backdrop is not getting easier for Citigroup. The bank has a large U.S. credit card portfolio, and its losses on overseas consumer loans in emerging markets such as Mexico and India have been rising. The bank needs to lay off thousands more employees, which will result in restructuring charges.
An accounting rule change that would bring credit card loans packaged into bonds back onto Citigroup's balance sheet could force the bank to set aside an extra $7 billion to $10 billion to cover loan losses, although the timing for such a rule change is unclear.
"I don't see Citigroup making any money over the course of the next couple of years," Whitney said. "Three out of four of Citigroup's major businesses don't make money, and one, Smith Barney, is making a lot less money," she added.
So what does that mean for Citigroup?
"I see Citi being forced to transform itself," said Whitney. That may come in the form of acquiring banks, or perhaps shedding businesses, she said.
Buying a bank or banks would help Citigroup increase its deposit funding. Citigroup relies more on borrowing in the bond market than competitors, particularly in the United States, which has increased its funding costs.
"If they want to grow their U.S. business, they're going to have to fund it differently," Whitney said.
Whitney has predicted since January 8, 2008 that Citigroup will continue to severe a massive losses, cutting jobs and could potentially sell its valuable assets like Smith Barney.
Related Posts :
Sources :
- The New York Post: Pandit needs to move his assets, November 23, 2008 01:49 am
- Reuters: Oppenheimer's Whitney sees years of pain for Citi, November 10, 2008 2:39pm EST
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