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Citigroup: A Lesson in Supply and Demand

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December 16, 2009 – Comments (3) | RELATED TICKERS: C

After announcing plans to repurchase TARP preferred stock that included a capital raise and the gov't selling part of its common stake, Citigroup had to make a few changes to get the offering placed.

The price had to be reduced to $3.15, well below the roughly $4 bucks a ticket Citi was getting before the deal to buy out of TARP was announced.  The gov't also postponed plans to sell its common stock and agreed not to sell any for at least 90 days.

We don't know all the behind-the-scenes details, but it's reasonable to guess that a $20+ billion dollar offering following shortly after BAC's $19 billion deal and Wells Fargo's $12 billion sale just might have been more bank stock supply than Mr. Market was ready to digest.

It's also reasonable to assume that had the government gone ahead with its sale, the price would have needed to go even lower to attract another $5 billion from the sidelines.  Not to mention Uncle Sugar's conversion price was $3.25 and Sec. Geithner is probably not very interested in locking in a loss after the Citi stake was so profitable on paper for TARP just a few days ago.

Maybe this is just the market saying Citi is too risky a proposition without the gov't propping it up.  Even at that, this isn't great news for PNC or any other banks that may have been considering share offers to buy their way out of TARP.  If private sector money has indeed had its fill of bank stock, the next bank trying to crawl out from under TARP is likely to have problems raising the cash needed to peel back the canvas. 

Any Fools get in on the $3.15 offer?  I'm not a Citi fan, but even to me that looks like a decent high-risk play.

Foolanthropy On!

Russ

3 Comments – Post Your Own

#1) On December 17, 2009 at 12:08 AM, Zachary09 (< 20) wrote:

Stock   market is a volatile investment it goes up and down  and if you are engage in this type of venture you have to assess when to sell and when to buy.  Proper timing does matter in stock market. When you can learn how to find the correct value of a company or share, you will know when the share price is at its lowest, and when you can buy, but if you invest in the stock market and follow the crowd in their buying and selling habits, you may end up with many more liabilities than assets.  After share prices crest, you can sell your shares and pocket the rest without needing a small loan. If you do this, you will be able to make money on the stock market when everyone else is losing money.

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#2) On December 17, 2009 at 12:34 AM, RainierMan (80.44) wrote:

I think a lot of people will look at Citi at $3/share and think it looks like a reasonable long term buy, especially since there is a perception that the government will never let them fail. Some might argue that it's still not priced right, but even conservative Morningstar sees their "fair value" (though "highly uncertain"at around $5-$6. I'll definitely be looking at call options way out, as I do think the stock will trade up over next year. 

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#3) On December 17, 2009 at 9:07 AM, rd80 (98.45) wrote:

Hmmm, C now below 3.15 in pre-market.

 

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