Bad news sends Citigroup stock to nearly 10-year low
NEW YORK -- Shares of Citigroup ctook a beating Tuesday after a Middle East investment manager said the bank would need to raise cash and a research analyst predicted that Citi would have to write down $18 billion for the first quarter.
Shares dropped $1.75 Tuesday morning, or 7.5%, to $21.34, nearly a 10-year low for the bank, before rebounding in the afternoon. At the close of trading in New York, Citi shares stood at $22.10, down 99 cents for the day. Since last May, when the bank's stock hit $55.55, Citi shares have plunged by 60%.
The sell-off began after Sameer al-Ansari, CEO of Dubai International Capital, declared at a private-equity conference in Dubai that Citigroup would need to raise more funds to maintain a healthy balance sheet. Citi has already raised more than $25 billion in recent months from sovereign wealth funds in Kuwait and Abu Dhabi as well as from major shareholders Saudi Prince Alwaleed bin Talal and former Citi CEO Sanford "Sandy" Weill.
Despite the massive infusion of cash in recent months, al-Ansari said, "It's going to take more than that to rescue Citi."
Compounding the damage, Merrill Lynch meranalyst Guy Moszkowski lowered first-quarter earnings estimates for the bank Tuesday, predicting that Citi would have to write down $15 billion in mortgage-related investments, as well as an additional $3 billion in losses related to other businesses.
Citigroup was burned badly in the subprime mortgage meltdown of 2007, writing off $17 billion in subprime-related investments in the fourth quarter alone. The massive losses cost former CEO Chuck Prince his job. In December, Citi's board named Vikram Pandit, a Morgan Stanley msveteran, to be the new CEO. For the past three months, Pandit has been reviewing the bank's operations and formulating a plan to put Citigroup on firmer footing.
Jeffery Harte, who follows Citigroup stock for Sandler O'Neill, says any fear of failure at Citi is an "overreaction." He noted that al-Ansari is not an investor in Citi and doesn't have any special access to information. "He could be right and he could be wrong," says Harte, who also predicts a tough quarter for Citi. "It's a tough environment in general for banking."
Citigroup declined to comment on al-Ansari's remarks. But the bank made available a transcript of Citi's fourth-quarter earnings teleconference, in which Chief Financial Officer Gary Crittenden discussed whether the bank would have to raise additional capital. During the call, which took place on Jan. 15, Crittenden said the amount raised at that time had been "stress-tested" against a variety of negative developments and was deemed to be sufficient to carry the bank through the second quarter even in a worst-case scenario.
Contributing: Reuters