Things were bad at HP (NYSE: HPQ) three or four years ago. The company’s stock did fall from $25 in early 2004 to $16.50 that August. The computer firm ended up kicking out its CEO and bringing in Mark Hurd, who saved the company. HP trades at almost $50 today.
According to the FT, top management at Citigroup (C) has turned to HP for advice about how to turn around a company, and how to make it run well without breaking the firm into pieces. The newspaper writes "People close to the situation say Citi officials see parallels between their situation and that faced by HP in February 2005."
The situations are not really like one another at all. Some HP investors wanted the company broken into parts. The same is now true with Citi. The comparisons end there.
Even when things were "tough" at HP, the company was making buckets of money. In the hard year of fiscal 2005, revenue at the tech company rose to $86.7 billion from $79.9 billion the year before. Concerns focused on the drop in operating income from $4.22 billion in 2004 to $3.47 billion in 2005. It was hardly a crisis. By 2006, operating income was back to up to $6.5 billion.
In 2004, HP had cash of $12,7 billion against long-term debt of $4.6 billion. The company was more than solvent and there was never any risk that it would lose money.
Citi is in 10x the trouble that HP was earlier in the decade. There is not any advice to be had from HP because the computer and printer company was not struggling with multi-billion losses. Citi faces the real chance that it may have to raise another $5 billion or $10 billion in capital to stay independent.
Citi management would be better off trying to reach Peter Drucker from beyond that grave.
Douglas A. McIntyre