According to Louis Navellier...Citigroup is Next. I hope not.
Next Bank to Fail? 09.16.08
After the bankruptcy of Lehman Brothers, I'm sure you're wondering what's next in the financial sector. Well, I'm going to make a bold prediction: Citigroup (C), which has been on my "dogs with fleas" list for several weeks now, will be the next financial company to fail in the coming weeks.
Why Citi? Simply, because of those toxic structured investment vehicles, or SIVS—these were the primary culprit in Lehman's demise, and have been tearing apart the financial sector for months. And unfortunately, Citi is the biggest player of all in SIVs. Due to its exposure from these risky derivatives, I expect Citigroup may have to be broken into little pieces when all is said and done.
Yes, Citigroup is a financial powerhouse. But its tremendous growth over the last 10 years leaves much to be desired. Its diverse operations and fragmented business units have prevented the company from working cohesively. As a result, Citigroup is subject to every financial bubble and bout of turmoil the market swings its way.
You know me; I'm an optimist when it comes to the investment world. But I'm also a numbers guy, and the numbers don't look good for Citigroup. Why? Well, Citi's balance sheet was already overextended when the current credit crisis began 14 months ago, and the company was backed into a corner. It had to raise over $30 billion of new capital and slash its dividend!
As the company continues to write down its bottom line, you have to wonder: Can Citi succeed? Unless the financial giant can fully integrate its diverse business units, Citi will have to keep selling off its assets to refinance its debt.
Write-downs and loan losses could force the company to turn to the economic regulators-that-be for a lifeline. And we've seen how willing the Fed is these days to pick up the slack—over the weekend, the Fed refused to take responsibility for losses on some of Lehman Brothers' most troubled assets, which it had agreed to do when JPMorgan Chase (JPM) saved Bear Stearns from bankruptcy back in March.
So Citigroup's problem is two-fold: Inadequate capital and a lack of support from federal regulators.
Citi has $24 billion of leveraged debt, $12 billion of commercial real estate exposures, $16 billion of Alt-A mortgages, and $22 billion of subprime CDO exposure that have already strained the company's financial position.
As I told you recently, Citigroup remains in precarious shape. It has depleted much of its capital, so much so that the firm has banned offsite meeting for investment banking employees and cut back on color photocopying to curtail expenses as its revenues continue to decline. Yikes!
So what's my bottom line here? Simply, I think Citigroup is the next big bank to go under. PortfolioGrader Pro, my stock ranking tool, gives this company an F grade across the board–and has given it that failing grade for almost a full year! It doesn't get any lower than that. Citi's fundamentals have deteriorated considerably; the numbers indicate that the company is hemorrhaging money. Without a much needed cash infusion, Citigroup—just like Bear Stearns, Lehman Brothers and now American International Group (AIG)—will collapse.