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Citigroup Seeks Ways To Weather Global Financial Storm

21 November 2008 - Features - Editor

Despite a vote of confidence from its biggest single investor, Saudi Prince Alwaleed bin Talal, Citigroup’s shares and market value continue to decline. Citigroup’s market value dropped to $25.7 billion on Thursday, and when taking into account that in the not too distant past its market value exceeded $270 billion, it appears that investor’s have some valid reservations about investing in the embattled bank. Nevertheless, on Thursday the Prince stated that he believes Citigroup’s shares are “dramatically undervalued”, and he plans to increase his less than 4 percent stake in Citigroup, to 5 percent.

Investors are increasingly concerned that Citigroup has insufficient capital to withstand losses that could very well run into billions of dollars, with analysts saying that the bank is likely going to have to deal with more than $20 billion in losses during 2009. Following a fall of 50 percent in its stock this week, the bank’s management team is reportedly looking at various options that would have been unthinkable in the past, such as selling off parts of the company, or merging with another firm. The attempted purchase of Wachovia in September, which was foiled by a higher bid from Wells Fargo, was a hard blow to Citigroup which was attempting to strengthen its position with the deposits that the purchase would have secured.

Citigroup has attempted to reassure investors that it has a very strong capital and liquidity position and is confident that the strategy being focused on, which includes selling assets and cutting expenses, will yield benefits over time. Prince Alwaleed emphasized his complete support for Citigroup’s management, including its chief executive, Vikram Pandit. But investors failed to be impressed or reassured, and the bank’s shares were driven below $5 on Thursday.

Along with representatives of other banks, Citigroup has been urging the Securities and Exchange Commission to reinstate the short-selling ban imposed for a period earlier this year, thereby making it more difficult for investors to bet on the company’s share price falling. In response, Securities and Exchange Commission chairman Christopher Cox has stated that he will be discussing short selling and other matters in a teleconference with international regulators on Monday, noting that it is essential for “close coordination among international markets”.

Citigroup’s history stretches back to 1812, and with over 200 million customers in 106 countries, has long been viewed as a beacon of global capitalism. But clearly it is not immune to the forces of the financial storm that is battering the global economy and has already irrevocably altered the long-standing structure of Wall Street. Citigroup’s board of directors is set to meet Friday 21 November to discuss their options, and in the meantime is going all out to highlight its strengths to investors and clients and to reassure them that every possible avenue will be investigated to weather the storm..

 


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