Citigroup was indicated lower earlier today on a downgrade to an "Underperform" rating out of CIBC World Markets. CIBC notes that Citi may need to sell assets to raise cash (ouch, some $30 Billion hinted) or it may need to cuts its dividend to bolster its capital ratios. At current prices, Citi has more than a 5% yield on its dividend. CIBC further notes that the stock could trade down into the low $30’s based on the current concerns.
The truth is that unless an analyst makes a stark hidden discovery, analyst calls are not truly news. Of course the calls impact the prices because of the influence in buys and sells. This price move today has just confirmed a technical crisis for Citigroup stock. Since shares had traded under a pretty hard support level of support at $43.00, this was on many chart watcher lists. Now shares are trading under $39.00 in pre-market activity. So the chart is busted (see bigcharts.com chart below), and now $43.00 is likely to be a key resistance level for technicians whenever Citi gets some of its mojo back.
The thought of Citi heading down to the low $30’s is a hard one to stomach, but that did occur in 2002 when the economy was in the midst of pain. But what is evident here is that now Citigroup cannot sit on its thumbs and act in support of Chuck Prince. Mr. Prince did a great job of getting the company’s legal and regulatory mess cleared up from the Sandy Weil era and he did inherit a major problem. But the key issue at hand is that now the financial giant needs a financial hero rather than a regulatory hero.
Being a dead money CEO actually doesn’t assure a job loss, and we wouldn’t harp on Chuck Prince so much (since December 15, 2006) (Jim Cramer hit him two weeks later too) if this was just about underperformance. After all, that is not an easy job and there are probably very few corporate leaders that could juggle that show. But these losses are just going to be too hard for Wall Street to ignore this time for the Prince to not get dethroned.
If the company fired Chuck Prince mid-morning it still might not un-break its chart. That won’t matter in this case. That is step one, and it has to be the first step among many. Prince Alwaleed bin Talal probably just lost any and all faith left in Mr. Prince and it is going to be hard for either Prince to find support for Mr. Prince now.
Chuck Prince should be gone by the end of the year. He should be gone by the end of the week, but he’s obviously been able to dig in like a tick and it may take some time for the company to find a locksmith that can make sure his key doesn’t work anymore. Even big entrenched companies have to buckle and do the right thing eventually.
Citi shares are down over 6% and trading under $39.00 pre-market on over 5 million shares.
Jon C. Ogg
November 1, 2007
Jon Ogg can be reached at firstname.lastname@example.org; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.