1. C is the most solid major banks, having higher tier-1 and all other risk measurement ratios than JPM BAC WFC etc etc etc. Check out yourself.
2. Government also works for its own interests. That's why today Citi gets a $38b tax benefits. That's a lot of money, even to a large company like Citi. Anyone still say government is ownership just bad?
3. Why CNBC and many media try to tell you it's a low ball secondary offer? Remember, they are fed by shorts and shorts, you can be assured given Pandit's background as a hedgie operator, did NOT get share allocations today. They will scramble tomorrow when real trading kicks off. A lot of naked shorts done last few days!
4. What's the most important indicator we need to know about the deal and real demand: 17x over-subscribed worldwide! That's $20bn x 17 = $340bn demand for Citi shares.
5. Then why priced at a lowly $3.15? Read every line of the news release! Citi did not publicize that, of all the money raised, $1.7bn were sold to top management, key traders, and other key employees as part of their shares-for-cash 2009 total compensation. You might complain that that's not fair! You are quite right, but how high or how low YOU wanted to price the shares if YOU'd sell these shares to YOUR own pockets?! Just get on with life by getting on the same boat tomorrow!
C is like George Bush, the stock the media loves to hate. A few things CNBC and the rest fail to mention on the tax break,
1- All of the TARP recipients will get the same break.
WASHINGTON (AP) -- Citigroup and other banks starting to repay the billions of dollars they borrowed from the government are getting another boost as they exit the bailout program: Billions more in tax breaks.
2- This was not targeted for C nor is it “New News”
The Treasury Department didn't want that to happen, so it started issuing tax guidance about a year ago that said the rules didn't apply when the government, through its bailout programs, caused the ownership change
3- The original tax was in place to prevent corporate raiders from buying companies just for their tax losses. Obviously the USG was not a corp. raider buying C for a tax loss.
She defended the overall strategy of helping bailout companies preserve their tax breaks, pointing out that the original law was intended to prevent corporate raiders from taking over money-losing companies simply to cash in on their tax breaks.
To read full story, see below.
I wrote and posted on FAS board on Dec 10...updated here:
Financials Top 10
10-Dec-09 11:34 pm
Economy: the big picture
#1, Goldilocks = good for stocks, best for financials. Economic growth will be 2~3% in the US and developed countries, 5~10% in China and emerging countries. At that pace, slacks will afford people to feel a jobless recovery -- but unfortunately to some yet good to investors -- jobless = profits-ful.
#2, No inflation or slight dis-inflation. Rate worry is so 2011.
Financials: the sector
#3, Under-owned. Take C for example, it's only owned 27% by institutions.
[C completed its offer on Dec 16. Now indexers and insitutions need to upgrade their % in C.]
#4, Under-loved. For proof, look no further than so patented and advertised bashing on CNBC and MSM's. Want more signs? Financials are still the choise of shorts.
[Best proof today: CNBC kept on repeating the C offer price, 3.15, without telling none of these: a) the deal was actually 17x over-subscribed; b) part of the deal was to sell shares to management and key employees so Citi management naturally would price as low as they could get away with the SEC; and c) rumor has it that a whole 1 of the 17x oversubscription came from one single SWF alone in Asia and they demanded a "good" price...whisper was China Investment Corp/CIC.]
#5, From extreme, give-away cheap to just very cheap. Thank the 85% haircut to start with in March. After a 100+% bounce, now it's down "only" 63% (XLF). On any historical and conventional measures, financials are still 2-standard deviation cheap.
Components: most ready, set, go again (after three months pullback)
#6, JPM. Tonight's auction of its government owned warrants marked the end of its "walk-down" in its PPS (by whom I wonder?) Now it's ready to walk up again, maybe run up?
[Done. JPM WS up some 20% since.]
#7, BAC. Pre-$15 deal, it's tested there three times. It happened to be picked as the secondary price. Can you say rock solid?
#8, C. Removal of the last major Major MAJOR overhang looks any day now.
[$20bn completed Dec 16...and government extend its no-sell to 3 months while on the same day (!) government ok-ed $38bn tax benefits to C...who says government is stupid in protecting the value of its interests?!]
#9, WFC. It said no way it'd go BAC and C's way, and it'd pay back TARP in a more shareholder-friendly way (read, quarter by quarter it will earn its way.) No one believed them but it will pay if you do. I do.
[Done Dec 15. It did sell new shares but used cash to buy our PRU's stake in their JV.]
#10, GS. All the talking heads were barking at the wrong tree when they were commenting on its shares-for-cash new bonus policy. They all were talking politics. It's EPS and PE! Post shares-for-cash, if applied across the board, E in the EPS will go up 50+% overnight, yet S in the EPS no more than 5%. New EPS will go up 45% or thereabout. What's the new P if you give it the same PE? Apple, Google, and most tech have been doing just that, for years and years BTW.
Shorting stocks in general and financials in particular at this stage = going agaist the printing machines.