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Goh Eng Yeow
Markets Correspondent
Citi broke one buck
March 06, 2009 Friday, 11:19 AM
Goh Eng Yeow notes Citibank's slow decline into penny stock-hood.
I RECALL that in the past whenever a US stock broke below US$1, the New York Stock Exchange had a rule that the company concerned had to do everything it could to push its share price above this level, or suffer the pain of delisting. I do not know if the rule has been repealed, but it is a sensible circuit breaker. Trip it and the alarm goes off, alerting investors that serious problems are besetting the stock. On Thursday night, embattled banking giant Citigroup broke US$1 for the first time in its history, even though it managed to close two US cents above this landmark threshold level at the close. It had come a long way down, since touching a historic high of US$57 on December 6 – which is less than three years ago. Ask someone then whether Citi could have fallen below US$1 and you would have been greeted with a look of incredulity. At that point in time, this would have been the stuff of horror fiction. So what is the market telling us by turning it into a penny stock? One thing for sure: Investors are questioning its ability to survive financially and are bailing out in droves. There is a related piece of news on banks which caught my attention yesterday. OCBC had made a highly unusual move to refinance a S$975 million bond issue way ahead of time by dangling more attractive interest rates to existing bond-holders to get them to take up the new bonds. The existing bonds are not due to mature for another two years. There have been suggestions this means that OCBC management is not confident of the financial storm subsiding even two years from now, and when the existing bonds come up for retirement, credit conditions might be even tougher, compared to now. Their reasoning: If you think that the storm is going to intensify, you batten down the hatches even more securely to keep your investors and your business safe. But OCBC’s move is another alarming signal that there is no early end to the problems in sight. I wish I can sound more cheerful about the financial markets on a Friday morning, when the sun is brightly shining and all is quiet and peaceful outside, even as I write. Thank god, it is Friday. Tags: banks, money, recession 
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Penny stocks are stocks that are less than US$5/share. It is a "miracle" that Citi remains trading on the Stock Exchange despite dipping below the US$5 mark, as the NYSE had made some concession to allow it to continued to be listed. Usually, if a stock becomes a penny stock for more than 6 months, it may be asked to be delisted. The delisting rule has been relaxed but it is still at NYSE's discretion to continue listing the penny stock.
A nice way to not return money to your bondholders is to convince them to buy new bonds from you, so you can delay returning their monies for another 10 years. The credit market remains largely frozen. Consumers can feel the crunch from the banks' growing reluctance to grant any loans at affordable interest rates and rocketing credit card interest. Credit card interest is usually much higher than sub-prime interest.
It only took a few dew drops of good news for the Dow to recover from its near death experience and rocket 350 points. The “I love America trades” of long bonds and Treasuries came back with a vengeance. The “short America trades” were last seen running down the street with their tails between their legs, with gold breaking key support at $900. News that Citigroup was profitable in 2008, and rumors of the suspension of the uptick rule and mark-to-market accounting were enough to do the trick. It also helped that every technical analyst on the planet was screaming “Buy!”Although this may not last, even a single day of fresh air is welcome. www.madhedgefundtrader.com.
So nationalize the banks already! Get it over with! Call it whatever you want: partial nationalization, temporary nationalization, socialization, liverwurst, or rutabaga. Just get it over with! This tortuous slow drip of on again, off again, stop gap measures is going to cost us more than if we executed the politically incorrect “N” word. Of course, a government takeover is the worst nightmare for many Republicans. But now that former Fed governor Alan Greenspan and many fiscal conservatives are on board, this shouldn’t amount to political suicide for Obama. The FDIC’s Sheila Bair already does this on an almost daily basis with smaller regional banks, like Washington Mutual, but for some reason the top nine “too big to fail” banks are sacrosanct. Their deposits have been effectively nationalized with government guarantees since last fall. The market is already selling us that many of these once hallowed institutions are now worthless. This is what Citigroup (C) at $1 and Bank of America (BAC) at $2 are telling us. Just wipe out the pitifully little the common shareholders have left, clean them up, and resell them in five years after the credit markets are restored. Every government that ever did this, like the UK in the eighties and Hong Kong in 1998, made a fortune. I was involved with both, and serious coin was made by the sellers and the buyers. Not to drive a stake through the hearts of these de facto “zombie” banks really would risk a Great Depression II and an “L” shaped lost decade. The markets would love decisive and surgical action like this and rocket.
http://blog.madhedgefundtrader.com/
Are DBS, UOB and OCBC bigger now in market capitilisation than Citibank?
The economic situation appears very bleak for financial institutions, automakers, electronic industries and the like. I dread to think of the day when Citigroup calls it quit and taken over. What will happen to the other banks when people lost their faith in them and make a run for their money despite assurance from govt. Will the govt have enough resources to "prop" up the various institutions that is simply too big to fail?