Comments on: Citibank Receives Emergency Cash Injection

By: Matias

Matias — Wed, 28 Nov 2007 17:49:53 +0000

This deal might not have been a bad one for Citi afterall, based on the following:

Andrew Clavell writes in his post: “Put another way, Citi has raised tax deductible, upper tier capital funds for 4 years at a cost equivalent to another financing source of Libor+150. Smart business.”

http://seekingalpha.com/article/55467-citi-s-capital-infusion-and-that-pesky-11-interest-rate

By: Sami

Sami — Tue, 27 Nov 2007 23:30:26 +0000

If Citi is that desperate for funding, then a dividend cut is going to be next on the agenda no matter what Citi’s management say. Citi won’t be able to justify $11billion in annual dividends going forward, if its borrowing costs is this high. More importantly its capital ratios need to increase and one way is by cutting dividends.

By: Andrew Clavell

Andrew Clavell — Tue, 27 Nov 2007 19:03:52 +0000

I penned a different take on this deal at http://crookery.blogspot.com/2007/11/citibank-adia-and-that-pesky-11.html.

Why oh why is it that when people hear “convertible” and 11% they jump to conclusions wthout looking at the detail.
This is a mandatory, or reverse convertible, a PERC, a DEC or one of the many monikers which mean a trade where you buy the stock and sell a call on it, thereby receiving fair value yield enhancement in return. A typical convert owner has a par out if the stock does not perform. This trade stuffs ADIC with 235m shares if they crater, and takes shares off them if they rise.

By: Francois Theberge

Francois Theberge — Tue, 27 Nov 2007 16:20:17 +0000

“convertible stock in Citigroup yielding 11% annually.”

And the market celebrates that?

I smell…fear!

Francois

By: Bob Dobalina

Bob Dobalina — Tue, 27 Nov 2007 16:10:58 +0000

Erm. The converts are mandatory, so looking at this as just an 11% bond (versus a 7% dividend yield on the common) misses the point, I think, Barry.

Now, we can argue that the dividend is not sustainable, or that the bond is pretty far subordinated in the capital structure, etc, but I think that your readers deserve better than this uncharacteristically facile post.

By: michael schumacher

michael schumacher — Tue, 27 Nov 2007 15:41:52 +0000

Irony of ironies in that Citigroup is being touted as the reason that the market is up in just about all the mainstream financial web sites but they decline to mention that C is down for the day and hit a new 52 week low to boot.

“investors”………who are they anyway….

Ciao
MS

By: michael schumacher

michael schumacher — Tue, 27 Nov 2007 15:31:26 +0000

Peter-

Only “they” know what the assets truly are. I would’nt want to speculate on that since I (as well as millions of others) do not have anything that resembles accuracy on the part of the banks. We are just making it up it seems. In the last two weeks I’ve read from two VERY different sources that if the banks had to value at market then they would instantly be insolvent.

But we continue to cheer bailouts as if they were not really relevant…….which is of course sillier than anything I could come up with.

Today’s market can be summed up by this:

“Investors cheered yet another bailout”

take a look over at the street.com…they still think it’s “contained”..with all the hoplessly optimistic “don’t sell” articles.

BTW the cost of living personified…..it was 85d in my back yard yesterday…..again today.

Ciao
MS

By: Michael Donnelly

Michael Donnelly — Tue, 27 Nov 2007 15:18:17 +0000

The big C is too big to fail so make sure everyone loads up on it, but not quite yet.

By: peter from oz

peter from oz — Tue, 27 Nov 2007 15:02:49 +0000

michael
PPT now benched as A Team required to get wall street out of the cellar (from time to time)
but how many quality assets at deeply discounted prices will they really want when/if offsetting oil price doesn’t provide the hedge
rgds pcm

By: Ken Houghton

Ken Houghton — Tue, 27 Nov 2007 14:51:46 +0000

In the optimistic version, it’s not 11%: It’s 11% for four years, with a return of only about 2/3 of the principal at the end. (Required to buy, floored at $31.83, for maybe a $20 stock.)

If the forward has a positive value (and it probably does today; I’m not running the numbers, any more than I would on BofA’s CFC-at-18 option, which is at least a real option), then the cost is actually appreciably greater than 11%.