According to The Wall Street Journal, after another brutal day on Wall Street, Citigroup’s (C) executives frustrated and befuddled by bank’s 50% stock slide this week, are currently evaluating the firm’s shaky market position and weighing the possibility of merging with another firm, auctioning off parts of the co. or selling it outright.
So far, discussions regarding the firm’s options have been internal where a range of scenarios that were unthinkable only weeks ago are being considered. Citi’s execs insist that the New York-based bank has ample capital and a sound strategic direction. The reality however, is that the firm’s shares cratered more than 26% Thursday, the lowest plunge in 15 years and its worst one-day percentage decline ever, raising serious concerns about the bank’s capital position. Another worrisome sign is that as the stock keeps nose-diving and unable to find support, Citi’s credit default swaps price keeps soaring as insolvency issues start to resurface. They widened considerably yesterday trading at 500 bsp, or $500,000 a year for five years for every $10 million of principal protected.
The sell-off in Citi shares, notes the Journal, has prompted the board of directors to start laying out possible contingency plans. In addition to contemplating a move to sell the entire firm to another bank, executives have started exploring the possibility of selling off parts of the bank, including the Smith Barney retail brokerage, which is one of Citigroup’s most lucrative and fast-growing businesses with 9.6 million domestic client accounts representing nearly $1.6 trillion in client assets worldwide. A move that Citi’s CEO Vikram Pandit would not enthusiastically pursue, sources told WSJ.
This latest development on the possibility of Citigroup auctioning off pieces of its business or even selling the company outright, comes close on the heels of an announcement by Saudi prince Alwaleed bin Talal bin Abdulaziz who announced Thursday plans of boosting his stake in the bank by $350 million, to 5%. His holdings are currently less than 4%.
The bank’s board is reportedly meeting on Friday to discuss all options, including stabilization strategy. So far this year, Citigroup has raised about $75 billion by selling assets and equity stakes, including a $25 billion capital infusion from the U.S. Treasury. The firm’s stock is down 83%, currently at $4.71, down $1.69 or 26.41% on a volume of 724 million.
Citigroup, an icon of global capitalism and once the largest and mightiest U.S. bank by assets and market value, has lost over $20 billion in the last four quarters, hurt by massive write-downs of bad debts. Earlier in the week, the bank said it plans to cut more than 50,000 jobs and reduce expenses by 20% from their peak as the economic crisis deteriorates.
Citigroup has more than 200 million customer accounts in 106 countries.