Citigroup (C) traded below $1 for the first time ever today, marking a momentous and meaningless flashpoint in the bank’s history.
In 2007, Citigroup’s market cap exceeded $200 billion. As of March 5, 2009, the bank is valued at just $5 billion.
Back in May of 2007, when Citi shares were trading above $55/share, investors were already calling for the breakup of the financial supermarket. The one-stop financial services model developed by former Citi CEO Sandy Weill proved to be too unwieldy as the lumbering banking giant has found out.
The unfolding credit and subprime meltdown that has left billions of non-performing assets on the Citi’s books served as the brick that broke the camel’s back.
Back in 1999, the passage of the Gramm-Leach-Billey Act effectively repealed the Glass-Steagall Act from the Great Depression, enabling the $140 billion merger of Citicorp and Travelers Group. The combined company, now known as Citigroup, provided commercial banking functions as well as investment banking, insurance, underwriting, brokerage, and a host of other financial services.
Weill and his successor, Chuck Prince, would promulgate the financial supermarket model and securitization process that has led to Citigroup’s demise. In 2007, Prince was ousted in favor of Vikram Pandit as the subprime meltdown began to unfold. Longtime board member Robert Rubin was dismissed in early 2009, but investor confidence has not been restored by either changing of the guard.
The government’s latest liquidity infusion has served to further dilute the company’s stock at the expense of existing shareholders. In late-February, federal regulators agreed to convert $25 billion of preferred shares into common equity, raising Uncle Sam’s stake in Citi to 36%.
Citi’s global reach (operations in over 100 countries, employing roughly 375,000) and cohesion to the financial system have marked it the poster child (Along with AIG) of “too big to fail”. Despite Citi’s iteration that it is well capitalized, the FDIC’s impending stress test results may reveal a failing tangible common equity ratio as a buffer against underwater assets.
Citi’s fall to the realm of penny stock has not gone unnoticed.
In February, the NYSE suspended its rule that stock trading below $1 for an extended period of time will be delisted until June 30th. The rule change appears to have been directly in anticipation of Citi’s descent to uncharted waters. It seems only a matter of time until the once-largest publically traded company in the world as measured by market cap is shed from the Dow Jones Industrial Average and, quite possibly, the S&P 500.
On February 23rd, we argued that head-fake rallies in the wake of federal infusions wouldn’t prop up Citi shares (See: Are the Lights Going Out at Citi?). It seems Wall Street isn’t satisfied either to the question of what’s different this time around.
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