Panic in the Citi

Like a hard core criminal receiving another guilty verdict, Citi has remained impassive up to now, but as its share price plummets to the death pink sheets, stress in the stolid wall of confidence is revealed by cracks in the criminals own feigned indifference, with time running out and all the adroitness of a CIA operative, the criminal blows smoke, allows leaks, half lies and lies.

Last night, Citi floated several trial balloons into the press:

• It might sell the company
• It might sell pieces of the company
• It won't do either of these things
• The board will have an emergency meeting about the stock price today
  

The WSJ got the leak about Citi possibly selling pieces of the company or the whole thing. The Times got the leak that this wasn't true. (Citi has a pet project going to discredit the WSJ after the paper said the firm was considering dumping Chairman Win Bisschof, which Citi violently denied. Perhaps the simultaneous leaked info and denials were designed to do this). Both papers got the story about the emergency board meeting today.

The purpose of the "might sell the company" leak, obviously, is to create hope for a takeover premium, which could briefly stop the stock plunge (the stock is up in pre-market). The purpose of the board meeting, meanwhile, is to decide what the company can actually do to stop the stock price from plunging.

But as Citi tries to stop the bleeding the it may actually be sealing its own fate as a takeover is almost certainly in the offing as Citigroup will never survive in it's current form.

The government won’t let Citi collapse. They’ll force a sale to another bank, like Chase, B of A, Wells Fargo, or perhaps a stronger, foreign rival.

Or as with Wells Fargo and Wachovia a better connected rival, but the general economy will see no benefits from any such deal.

But the problem is that we’re just building a bigger time bomb. All of the above banks have very high leverage ratios. Fundamentally, they’re not in a significantly better position to withstand the crisis than Citi. The government will, perhaps, try to roll up all private banking assets into one super bank, which will receive unconditional government support. And yet, the potential failure of the super bank could blow up even the government’s balance sheet.

Yup, it sounds like something that's tick, tock, ticking. BOOM! Boom in the taxpayer's face, but the bank goes right on buying time and selling lies.

Citigroup Inc., which fell 26 percent in New York trading today, is seeking to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter. The Wall Street Journal said Citigroup is considering a sale of the company.

The New York-based bank has discussed with the Securities and Exchange Commission and lawmakers its proposal to reinstitute the ban on bets that stock prices will fall, said the person, who declined to be identified because the discussions weren’t public.

Really? It short sellers that cost the bank $20 billion big in the last year, it was short sellers, even if there were any, who sold the liar loans and caused the forced repurchase of billoins of dollars worth ot toxic SIVs? Oh, Ok, Short Sellers did that!

Citigroup is blaming shorts when the short interest is under 3%. That's ridiculous. If Citigroup does not understand this, it is a sign of incompetence. If Citigroup does understand how ridiculous their claim looks (and is), that is additional support for the desperation thesis.

Note the dividend. Citigroup is paying a dividend when it is clearly in need of capital . Is that a sign of arrogance or incompetence? That Citigroup is in this mess in the first place is clearly sign of incompetence somewhere, at some point in time. Current management will attempt to place that blame on Chuck Price, but the culture of greed, arrogance, and excessive risk taking, permeated the entire financial industry.

Caught, in another lie. As one lie unravels another must take its place, so the lie begets lying and they stack up, crash and cascade over themselves, threatening to bring an ignorant, distracted and fearful public into the vortex, because the most dangerous lie is the one that Citi has no credit risk and therefore is a viable company which must simply clear some hurdles.

Senior executives say the company is financially strong and has ample financing options. Moreover, there are few buyers who would be willing to pay a price that Citigroup would want for its most valuable assets.

Where? The bank has losses greater than most national debts, has seen its share price crater to the low single digits, has over a trillion with a TEE dollars in Dark Assets and a sundry of off balance sheet bull sh!t piled high, and getting higher. If Citigroup were such a viable it would be a screaming buy, and buyers would be scrambling to buy. But these buyers appear to be as dark as the banks assets.

Senior executives feel that Mr. Pandit has followed through on plans to aggressively shrink the company and control costs. The bank has sold tens of billions of dollars’ worth of risky assets, improved its capital position and announced plans to eliminate 52,000 jobs by next June. “We are entering 2009 in a strong position, much stronger than we entered in 2008,” Mr. Pandit said in a speech to employees this week. “We will be a long-term winner in this industry.”

I feel compelled to inform senior management that Mr. Pandit is solving the wrong problem, and to inform Mr. Pandit that the notion that “We are entering 2009 in a strong position, much stronger than we entered in 2008,” strains credibility that he does not have. The problem to be solved is how to generate revenue, at the onset of the great recession, nor would not be trading in the low single digits if the bank were getting stronger going into 2009, but even so 2009 is going to be weaker than 2008, the trap is airtight.

Still the lackeys say

“The earnings power is there,” said Charles Peabody, a financial services analyst at Portales Partners. “It’s a question of getting through the credit issues.”

Well Mr. Charles Peabody- Poindexter, Where is "there"? The banks own 10-Q directly refutes you.

As the environment for consumer credit continues to deteriorate, the Company has taken many actions to manage risks such as tightening underwriting criteria and reducing credit lines. However, credit card losses may continue to rise well into 2009, and it is possible that the Company's loss rates may exceed their historical peaks.

Credit card losses, home mortgages, student loans, commercial real estate debt, one and all and every dam last one of them are likely to deteriorate further as recession and ever more likely depression sets in.

Citi also already played the game of cannibalizing your acquisition, but the fun came to jarring halt, when Wells Fargo outmaneuvered Citi for the marrow of Wachovia, so now Citi cannibalizes itself, cut 50,000 heads before Christmas, lies about its solvency in callous disregard for the losses suffered or to be suffered by investors pumping billions into a black hole.

Within the bank’s Manhattan offices, television screens have stopped displaying the company’s stock price. Traders have begun making jokes comparing Citigroup to the Titanic.

And just like the Titanic the second that it impaled itself on that iceberg the laws of physics took over and there was is nothing anyone could do but get away and watch it sink. Citigroup made it's deal with the devil in the days of Chucky, and left the pieces to be picked up by others.

From July 10, 2007

Chuck Prince Citigroup CEO: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".

I leave it to you to decide whether or not this is the "last dance".

It's tough calling a top but I am going to try. I suggest the current trend is exhausted. My last "top call" was specially in regards to housing in the summer of 2005. Can lightning strike twice?

Notice how Chucky got his and got out, swam away, leaving the rest of us to sink or swim from the undertow of scuttled wreckage. It was no accident. If fact Citigroups Get Yous and Get Out, leaving everyone else to bail model, is a simple synopsis of the entire credit crisis.