Is Cit Dead Meat

Is Paulson’s worst nightmare about to become real? Or to phrase it perhaps more appropriately,
will the next Secretary of the Treasury have to deal with the demise of Citibank?

The Wall Street Journal today paints a picture of a company engaged in meltdown in the executive suite. Board dissatisfaction with the Chairman, board dissatisfaction with the executive management team, finger pointing among management and all in all enough intrigue to keep any fan of Machiavelli happy for some time. Throw in a stock price at less than nine bucks a share and you have a pretty messy situation.

Felix Salmon wrote today that the stock is priced at a level which discounts a pretty high probability that it might go to zero. He also points out the dilemma facing the government if this behemoth does indeed start floundering. It’s not just too big to fail, it’s also too big to save. Layer on top of that the problems inherent in selling it off if it does crater and you have the makings of an Excedrin headache.

There is more than a fair bit or irony here. Citi and AIG are the poster children for financial institutions that own more than their share with what used to be called franchises. A mere two or three years ago, the players would have been lined up around the block to buy the assets that AIG has on the block and the assets that Citi may be putting up for sale. Today, you probably couldn’t pay someone take them. No that’s too harsh, they have great money making machines that someone should be bidding on but everyone’s too broke to bid.

Even the oil sheiks are busy pouring their diminishing cash flow into their own banks to keep them afloat. Asia? Forget about it. They may have some cash here and there but after Morgan and a few other ill-timed investments discretion is the word of the day. Not even the vaunted vulture funds appear ready to pounce.

So what’s at work here. For the time being I’ll just suggest that nobody knows which way to go. Too much uncertainty about government actions (who wants to go into the insurance biz and have to go up against Uncle Sam?) and just pain old fear seem to be keeping everyone on the sidelines. I have a long post in mind for this but in the meantime if you have any ideas leave me a comment or email me.

Tom Lindmark

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