Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
What to Expect at a Critical Stock Market Point: End of a Wave 2 Rally - 26th Apr 18
A New Lithium War Is About To Begin, Modern Gold Rush! - 26th Apr 18
Silver, silver, and silver! There’s More Than Silver, People! - 26th Apr 18
How to be Financially Prepared When Purchasing Your First Home - 26th Apr 18
Is a Stock Market Crash Imminent or Does this Stock Market Bull Still Have Legs - 25th Apr 18
Gold Price Focusing on May Cycle Bottom - 25th Apr 18
Cash “Vanishes” From Bank Accounts In Ireland - 25th Apr 18
Is the Malaysian Economy a Potemkin Village - 25th Apr 18
Land Rover Discovery Sport Rattling / Knocking Sounds From Car Pillars - 25th Apr 18
China Takes the Long View on Gold-Silver... and So Should You - 25th Apr 18
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Citibank Eight Months Later

Companies / Banking Stocks Nov 24, 2008 - 12:57 AM GMT

By: James_Turk

Companies

Best Financial Markets Analysis ArticleI last wrote about Citibank eight months ago in an article entitled “Will Citibank Survive?” That article is still posted on MarketOracle.co.uk and can be read at the following link: http://www.marketoracle.co.uk/Article4088.html

To be precise, I should actually be saying “Citigroup” as the bank is only one part of this financial services behemoth. But I guess habits die hard. When I began my business career by joining a major New York City bank nearly forty years ago, banks were just that – banks. They were not the hodgepodge of businesses that many of them have become in their attempt to serve up a smorgasbord of financial services that are not necessarily interrelated.


Perhaps this head-long plunge into extra-banking activity explains why I focus on Citi, to use its popular name, and not other banks. I don't mean to pick on Citi, but for decades it had been the bellwether among all banks and stood head-and-shoulders above its rivals.

From that preeminent position, Citi has devolved to become the poster child of bad banking practices. These are marked by the reckless financial engineering foolishness and irresponsible credit excesses that have turned staid and conservative banks into the out of control casinos they have become.

Banks – or to be precise here, the bankers who run them – in recent decades have focused on quarterly results and management bonuses. Gone is the caution that should be prudently and routinely exercised in their role as guardians of the depositories of other people's money.

I suppose though this outcome was inevitable. When the government proclaims that you are “too big to fail”, that implied backstop will unsurprisingly encourage management to throw caution to the wind, and so they have. But we are now seeing the results of this misguided policy and the bad banking practices that result from it. This reach to generate outsize returns for shareholders comes with enormous risk.

In our book, The Coming Collapse of the Dollar , published in December 2004, John Rubino and I identified Citi, then trading around $49, as a short sale candidate. When working a year ago on the paperback version, The Collapse of the Dollar , John and I re-confirmed Citi as a short sale candidate even though it had fallen by then to $31. When my article written eight months ago questioned Citi's solvency, its stock was trading at $21.57. Citi closed this past Friday at $3.77. On the accompanying chart we can see that the price of Citi's stock has literally fallen off a cliff.

This chart is answering my question from eight months ago with a resounding “no”. This chart is saying that Citi will not survive. There are other reasons to reach this same conclusion.

While Citi has reduced assets and increased capital in recent months, Citi's tangible equity as a percentage of tangible assets in its latest quarterly report on September 30 th remains a paltry 3.2%, meaning it is still leveraged at a towering 31-to-1 and well above prudent levels.

That high leverage is bad enough, but a more disturbing trend has emerged in recent months. Citi's deposit base is eroding.

Deposits have dropped 6.1% from a peak of $831 billion as of March 31 st to $780 billion six months later, a decline of $51 billion. Some $46 billion of this decline (after accounting for the sale of its retail banking operation in Germany ) occurred in interest-bearing deposits in Citi's offices outside the U.S. Most of these deposits are not insured. Thus, it is clear that Citi is losing the confidence of depositors outside the U.S. , which means that companies, other banks and individuals are pulling deposits from Citi to move them to safer alternatives.

We can only speculate as to whether deposits have eroded further since the end of the quarter because hard numbers are not available. But given the bad publicity it is receiving from the huge losses it has taken in each of the past four quarters and in response to the way Citi's stock price has cratered, it is reasonable to assume that uninsured depositors in particular must be pulling deposits out of the bank. After the collapse of Lehman, no one is taking chances anymore with their money.

It has been my experience that it is the nature of bear markets to smash the darlings of the previous bull market. Citi clearly held that exalted position in the 1980s and 1990s bull market, but the tide has turned. Stocks are in a bear market, and Citi is suffering the consequences of bad management, the bad policies they implemented and the bad results they produced.

Citi is now trading with a market cap of $21 billion, about 22% of its reported book capital as of September 30 th . Clearly, the market is anticipating more big losses from Citi in the months ahead which will further reduce its capital base.

It's not difficult to see what the market is thinking by giving Citi's share price this big haircut. The recession has barely started, and typically, the bad news for banks from loan losses and defaults does not occur until the recession nears an end. And given the ongoing decline in economic activity, it looks like we are nowhere close to that point. So the big markdown in Citi's stock price looks reasonable.

Citi is not likely to remain for long in its present form and with its current management. I expect more bad news that will likely drive its stock lower in the weeks and months ahead. Nevertheless, the opportunity to make big money by selling Citi short has now passed. So if you have also viewed Citi as a short sale candidate, I would therefore use this present decline in its stock price to cover the short sales. I then recommend putting the profits into something safe, namely, physical gold.

By James Turk
http://goldmoney.com

James Turk is the Founder & Chairman of GoldMoney.com < http://goldmoney.com>. He is the co-author of The Coming Collapse of the Dollar, which has been updated for a newly released paperback version, now entitled The Collapse of the Dollar < www.dollarcollapse.com >.

Copyright © 2008 by James Turk. All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

James Turk Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules