Citigroup Below $5/Share
This could be a problem since many institutional investors and pension funds are barred from owning stocks below $5 dollars, and that could produce a massive sell-off of the stock that would further reduce the price.
“That’s the danger of crossing that $5 threshold,” says Owen Malcolm, senior vice president of Sanders Financial Management in Atlanta. “They’re (Citigroup) already in trouble. It could get worse.”
Money managers don’t necessarily have to sell Citi immediately. But they would have to get out before the end of the quarter if the stock doesn’t recover and may opt to do so now to mitigate potential losses.
Of course, I have no worries that Citigroup will be deemed too big to fail and they will get a boat load of money from the government, then go have a huge party in Hawaii. This is America dammit! And we prop up our losers.
“It’s getting to the point where it’s make-or-break time for Citigroup,” says Ryan Detrick, an analyst at Schaeffer’s Investment Research in Cincinnati. “It doesn’t look promising.”
For Citigroup, a Dow component and one of the world’s biggest financial institutions, the reversal in its stock price is stunning. The stock was trading at over $20 a month ago and $31 a year ago. It has plunged nearly 90 percent in nearly two years.
Citigroup shares have lost one-third of their value in the first three days of this week as investors worried that Pandit’s plan to cut expenses by 20 percent and eliminate 52,000 jobs won’t restore the bank to health.
Citigroup has lost $20.3 billion in the last year and taken tens of billions of dollars of writedowns on mortgage and other toxic debt. Analysts expect it to lose money in the fourth quarter, and some don’t expect it to be profitable in 2009.
Once again, the problem with bailing out companies that are “too big to fail” is that not only does it send a message to the upper management of that company, but to all companies, that their irresponsible behavior will be tolerated. That they can take risks they otherwise might not and not have to face the conseuqences.
I have to say this is rather amusing in a grim sort of way. Quite a few supported the bailout which was supposed to prevent this very thing. We have Citigroup teetering on the edge of disaster. Bank of America is down to $11.25/share whereas a year ago the price per share was over $40. Morgan Stanley is down to $9.20/share from over $50 a year ago. Goldman Sachs is down to $52/share down from $200/share. The $700 billion was supposed to stop this. But now we see it isn’t working. We’ve basically wasted $700 billion. To those who supported the bailout, what should we do now? Wait let me guess…another $700 billion?