May 20, 2011

Commentary- Citi & Pandit

Posted in Banking, Big Banks, Bonds, Capital, community banks, crises, derivatives, Finance, Forward thinking, government, investment advisor, investment banking, investments, local banks, municipal bonds, San Francisco, Stocks, taxes, Uncategorized tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , at 4:43 PM by Robert Barone

Vikrim Pandit was named CEO of Citigroup in December, 2007.  Most people have forgotten that he pocketed at least $165 million when he sold his hedge fund, Old Lane Partners, to Citi.  His hedge fund was shut down in the middle of 2008 due to investor redemptions, forcing Citi to write down the value of the poor investment.

As per the Wall Street Journal, by February 2009, taxpayers gave Citi $50 billion dollars in capital, and guaranteed $301 billion of bad debt.  The excuse given for taxpayers bailouts of the mega banks is that “credit is the life blood of the economy.  If the credit system isn’t working then firms cannot finance themselves, people cannot borrow to buy a car, to send a student to college, to buy a house.”
 (Bernanke 9/25/08).  So, let’s take a look at the “credit flow” Citi has done since its taxpayer bailout and since Mr. Pandit gained control.

From Citi Quarterly Statements : Numbers in Millions of Dollars
 

12/31/2007

3/31/2011

% Change

Consumer Loans

592,307

441,213

-25.5%

Corporate Loans

185,686

195,923

5.5%

Total Lending

777,993

637,136

-18.1%

It doesn’t appear that Citi, under Pandit, has lived up to the lending mandate that was accepted along with TARP funding.

It is also important to remember what Citi’s achievements have been during a period when rates paid on deposits and other borrowings have been essentially zero.  It is easy to make money when you borrow for next to zero, and buy treasury bonds.  This subsidy has come directly out of the incomes of retirees, savers, pension funds, and municipal cash accounts.  Yet, for its size, Citi has barely been profitable.  Imagine what its performance would have been if the Fed hadn’t repressed interest rates for the past 3 years.

At the end of 2007, Citi had 4,905.8 million fully diluted shares outstanding (10Q). By March 31st 2011, there were 29,965.8 million shares, a dilution greater than 6 fold.  Since the dilution, Citi has done a 1-10 reverse split.  Usually, reverse splits occur because a company’s stock price is languishing.  Citi’s split is no exception.  Since that split, the stock has fallen an additional 10%.

So, why reward a manager, who has already been paid hundreds of millions of dollars by the company for a fund that had to be shut down at a huge loss to the shareholders, with a four year no cut contract worth many more millions with the only criterion being that the company simply survives. We don’t think that diluting shareholders and shrinking business all while being coddled with Federal Reserve subsidies deserves a massive pay raise.

“This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet,” Obama said. “Those days are over.” (2/24/09)  Apparently, those days have now returned.

Robert Barone, Ph.D.

Matt Marcewicz

The mention of companies in this article should not be considered as an offer to sell or a solicitation to purchase any security and or investments of the companies mentioned.  Please consult an investment professional on how the purchase or sale of such investments can be implemented to meet your particular investment objectives and goals.Statistics and other information have been compiled from various sources.  Ancora West Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.Ancora West Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  A more detailed description of the company, its management and practices are contained in its “Firm Brochure”, (Form ADV, Part 2A).  A copy of this Brochure may be received by contacting the company at: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778.
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: