Citigroup Stock Price Pattern to Watch

Citi chart has potential Inverse Head & Shoulder Pattern

Post by Kirk Lindstrom's Investment Letter.

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Citi To Repay Tarp; BofA Repaid Tarp

Today Citigroup (C charts) announced plans to repay TARP. This comes less than two weeks after Bank of America (BofA - BAC charts) announced it moved forward its equity offering to repay tarp due to high demand.

Dec. 14 Headline: Citi to raise $17 billion to repay U.S.
Excerpts:

• Citigroup laid out a plan to repay the money it owes the U.S. government, including issuing $17 billion of stock immediately, as the bank looks to end the executive pay restrictions that came with the funds.
• The government plans to start selling the roughly $30 billion of Citigroup shares it owns, and is ending its agreement to guarantee a roughly $250 billion pool of Citigroup assets against outsized losses.
• The government estimates it could see a profit of $13 billion to $14 billion on its investment in the bank.

Dec. 3 Headline: BofA sells $19.3 billion of securities for TARP repay
Excerpts:

• The bank had previously said it planned to sell securities next Monday, but moved the sale forward because of demand. The size of the deal grew to $19.29 billion of common equivalent securities, from an originally planned $18.8 billion, according to a pricing document sent to investors and obtained by Reuters.
• The securities sold at $15 each, about 5 percent below where Bank of America shares closed on Thursday. The securities will convert to common stock once equity investors approve an increase in authorized Bank of America shares. The bank's shares fell to $15.58 in aftermarket trading.

According to a document released today by Citi titled "Repaying TARP and other Capital Actions," Citi's Tier 1 capital ratio (a measure of a bank strength) will drop to a tie with #2 BofA while its Tier 1 common ratio will remain the leader at 9.0% compared to 8.4% at #2 BofA.

click for full size images

Today BofA and Citi are trading at $15.53 and $3.74, respectively. Current:

• BofA Quote & Charts
  
  
• Citi Quote and Charts
  

Disclosure: I own Citi in my personal account and have a profitable position in my "explore portfolio" with the last trade a buy at $2.95.

Citibank: Opportunity in Cow Chip Before It Returns to Blue Chip Status

Former blue chip stock Citibank (C charts) is now a "cow chip" according to Hank Smith, VP, board member, portfolio manager and Chief Investment Officer as Haverford Trust Co.

Click chart courtesy of stockcharts.com for full size image

Hank Smith was a guest on today's "The Call" show on CNBC with Amanda Drury (Bio & pictures), Melissa Francis (bio and pictures) and Larry Kudlow. When asked about Citibank, he said:

"We would put Citi in the category of former blue chip, now cow chip. That doesn't ...

[laughter from Amanda Drury, Larry Kudlow and Melissa Francis in background]

That doesn't mean you can't make money. Look. It was a cow chip in the early 90's as well. It certainly made investors a lot of money for those willing to buy near the bottom."

I agree with Hank Smith. I have made a lot of money over the years buying "cow chips" that are out of favor with investors before major changes are made to the companies to regain "blue chip" status.

Click chart courtesy of stockcharts.com for full size image

Citi is one of the stocks I've done very well with over the long term in "Kirk Lindstrom's Investment Letter" explore portfolio.

Explore Portfolio Summary	Citigroup Charts
-------------------	-------------------
Total $ Bought	($29,018)
Total $ Sold	$26,703
Dividends	$7,801
Difference	$5,485
Shares held	1,400
Exposure/Share	on house $
$ / Share	$4.880
Held Value	$6,832
Investment Gain	$12,317

My most recent "explore portfolio" trade in Citi was to add 350 shares at $2.95. I currently have no "auto sell" levels set for myself or subscribers but I am considering taking profits between $5 and $6, perhaps selling half I bought after a double.

Below are some excerpts from my August 2009 newsletter (composed 7/22/09 and emailed 7/23/09 ) about Citi. You can also read the full text with graphs and table here in slow to load pdf.

Citibank at $2.80
Annual Dividend = $0.04
Dividend Rate = 1.43%

• Citi reported Q2 profits of $4.28, or 49¢ per share, compared with a year-earlier loss of $2.5B, or 55¢ a share. Revenue surged 71% to $29.97B, driven by profits from selling Smith Barney and “write-ups” from the rising value of its toxic assets. Citicorp retail, commercial and investment banking business revenue and profits fell 11% to $14.96B and $3.06B, respectively. Citi segregated its worst assets into “Citi Holdings” which includes the consumer-finance brands that do not generate deposits such as CitiFinancial, Primerica and CitiMortgage, along with "toxic" loans and securities. Citi’s Tier 1 capital ratio, a key measure of reserve levels, rose to about 12.7% in Q2, compared to 8.7% in Q2-08 and 11.9% in Q1-09. Tangible common equity, another gauge of financial strength based on the amount of stock it has, grew by $9.1B in Q2. This is all good news as it puts distance from fears of bankruptcy.
  
  
• Valuation & Chart: Write-ups of toxic assets could continue as the economy exits the recession. Without the sale of Smith Barney, Citi lost money. Earnings estimates and valuation calculations are still near worthless but I am showing them below so we have a record of analyst estimates near the bottom. Just last month analysts had Citi losing $3.00 to making 40¢ next year. This month they have Citi “only” losing 55¢ to making the same 40¢. It seems insane they cut the loss on the low end by a factor of 7.5 but didn’t increase the upper end by a single penny. The big fear of bankruptcy is past so the bottom should be in. Citi cut the quarterly dividend to 1¢ a share where it will stay until they repay the TARP money. At $0.04 a year, the dividend rate is 1.43% at $2.80.
  
  
• It seems everyone hates Citigroup now so that is the time to have a position which is why I have not sold even though it seems to have stalled its recovery while other stocks we know have great business models are going higher.
  
  

• PDF file: Tables and Graphs of Citibank from my August Newsletter

For my newsletter, I added C as an original pick in September 1998 at $18.75 split adjusted because it was cheap and it diversified my original portfolio that was 60% in technology stocks. In 2000, I sold enough Citi between $53 and $59 to get all my original investment out and then some. I have used the remaining shares since then to trade its long-term volatility while collecting a dividend. What I used to like about Citigroup was it made real money and paid a good dividend. I was happy to collect the dividend when it traded in a narrow band between $40 and $56 between 2003 and 2007. I feel dumb for trusting Citi management to be smart enough to avoid the troubles from the real estate bubble. My consolation is I sold enough Citi when it was high to be on house money.

KEY: I am put SOME “profit taking dollars” back into Citigroup with the hope it can repeat is rise from the ashes much as it did after the housing market collapse in the early 1990s.

My latest update for Citibank is in the just released September issue of "Kirk Lindstrom's Investment Letter." Subscribe Now.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 131% (over a double!) vs. the S&P500 DOWN 1.7% vs. NASDAQ down 7.9% (All through 9/7/09)

As of September 7, 2009, "Kirk's Newsletter Explore Portfolio" is up 18.8% YTD vs. DJIA up 7.6% YTD.

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Cisco and Travelers Join the DOW; GM and Citibank Are Out

Cisco Systems (CSCO Charts) and Travelers Co. (TRV) will be the added to the Dow Jones Industrial Average (DJIA Charts) effective June 8, 2009. Cisco and TRV will replace bankrupt Government Motors (GM) and disgraced Citibank (C).

GM has been in the DJIA index since August 1925.

Citigroup Acquires Wachovia Banking Operations

This morning the Federal Deposit Insurance Corporation (FDIC at www.fdic.gov) announced that Citigroup (Citigroup Charts) will acquire the banking operations of Charlotte, North Carolina's Wachovia Corporation (WB.) This transaction was facilitated by the FDIC and concurred with by the Board of Governors of the Federal Reserve and Hank Paulson, the Secretary of the Treasury, in consultation with the President, George Bush.

Wachovia did not fail. Instead it was acquired by Citigroup Inc with assistance from FDIC. Comments from FDIC Chairman Sheila C. Bair:

"For Wachovia customers, today's action will ensure seamless continuity of service from their bank and full protection for all of their deposits."

"On the whole, the commercial banking system in the United States remains well capitalized. This morning's decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury."

"This action was necessary to maintain confidence in the banking industry given current financial market conditions."

Citi will pay Wachovia about $2.16B in Citigroup stock. Wachovia will continue to own AG Edwards and Evergreen which will add to this baseline valuation. The Citigroup shares give Wachovia a value of about $1.00 per share (Wachovia has 2.14B shares outstanding) plus whatever value the market assigns to the remaining assets.

Further terms of the agreement:

• Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans.
• The Federal Deposit Insurance Corp. will absorb losses beyond that in exchange for $12 billion in Citigroup preferred stock and warrants to compensate the FDIC for bearing this risk.

On the acquisition, Citi cut its quarterly dividend 50% to 16¢ a share . On an annual basis, the dividend was cut from $1.28 to $0.64 per share. At $20.00 a share, Citigroup yields 3.20%.

Citigroup also announced it will raise about $10B in new capital, further diluting stockholder equity.

Citigroup CEO Vikram Pandit said of the deal,

“Citi will have more than $600 billion in deposits in the United States, giving us about a 9.8 percent market share. Our total deposits will be $1.3 trillion globally, $350 billion more than our next largest U.S. competitor, making us one of the world’s largest core deposit-funded financial institutions.”

On this deal with government backing, Citigroup became one of the "anointed banks" that the government has deemed worthy of FDIC assistance or too large to fail.

Citigroup traded as low as $19.44 near the open then quickly recovered to $20.00, down 15¢ from Friday's closing price.

Disclaimer: I own in my personal portfolio and have recommended trading Citigroup around a core position in "Kirk's Investment Newsletter Explore portfolio" that is on "house money" from buying in 1998 and taking significant profits (more than twice what I put into the stock) in July and August 2000. Since then, I have done some minor trading around the remaining shares as a core position. I my buy back some of the shares I sold eight years ago when it looks like the dust settles as these huge financial panics are usually exceptional times to buy the very best of the best that survive. To learn what I recommend for newsletter portfolios, subscribe now!

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Jim Cramer Loses $50K Bet to Eric Bolling: Financial Services was NOT 2007's Hottest Sector

Jim Cramer is both an entertainer and a gentleman for making good on this bet wtih Eric Bolling over his prediction last year that financial services would be the hottest sector for 2007. Bolling, disagreeing with Jim, placed his money on oil and gold.

Well, financial services were hot in 2007. They were so hot they melted down!

The Post is absurd to suggest Cramer is in any way responsible for the subprime meltdown. They would be correct to say Cramer was surprised like the rest of us that great institutions like Citibank and Merrill Lynch were caught with their hands in the cookie jar and were too stupid to sell this toxic paper before the "stuff" hit the fan.

Today's NYPost has a story: " 'MAD' JIM CRAMER LOSES GOLDEN $50K BET

"Should stock jockey Jim Cramer be locked up for aiding and abetting the subprime market meltdown? The host of CNBC's "Mad Money" now owes $50,000 after losing one of the worst wagers of his entire career to rival trading wiz Eric Bolling.

Cramer, who favors the phrase "Boo Ya," made an on-air bet with Bolling about a year ago that financial services would be the hottest sector of 2007. Bolling, a former trader at the New York Mercantile Exchange, placed his money on oil and gold.

Investors who took Cramer's advice would have taken a 30 percent hit to their portfolios as the stocks of financial titans such as Citigroup and Merrill Lynch got hammered by the mortgage crisis. On the other hand, investors savvy enough to follow Bolling's bet on gold and oil would have hit the jackpot, as the hot commodities jumped over 60 percent in the same period.

Cramer, through a spokesman, blamed his loss on Federal Reserve Chairman Ben Bernanke's failure to cut interest rates more aggressively. "The bet turned on Jim Cramer emphatically calling for the Fed to ease rates. The Fed didn't follow Jim's advice, and as a result he'll be happy to write a check to the charity of Eric's choice," a spokesman said.

I am glad to see Jim Cramer made good on his bet like the gentleman he is. The NY Post is... the NY Post.

See Jim Cramers "They know NOTHING" rant video with Erin Burnett here.

.

Saudi Arabian Prince Alwaleed, China and others to invest up to $10 Billion in Citigroup

Late this afternoon the Wall Street Journal reported Saudi Arabian Prince Alwaleed bin Talal, Citigroup's (Charts) largest individual shareholder, will invest in Citibank. How much the price will invest was not disclosed, but he article says the prince wants to keep his stake under 5% to avoid scrrutiny from the SEC.

Others will join the prince investing in Citigroup. In total, the story said investors from China's Development Bank will invest $2 billion in Citigroup along with others to bring the total investment to between $8 and $10 billion.

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Last November, Citigroup sold $7.5 billion worth of equity units to The Abu Dhabi Investment Authority.

On a day the DJIA was down 246.79 points to close at 12,606.30, Citigroup was up $0.45 (1.60) to close at $28.56. In after hours trading, Citi gained anouther $0.37 to finish at $28.90.


Disclaimer: I cover Citigroup in "Kirk Lindstrom's Investment Newsletter" where I have very large gains from buying in 1998, taking profits in 2000, buying more shares in 2002, taking profits again in 2003 and now..... I am also long Citigroup in my personal portfolio.