Reuters reports that shares in Citigroup fell below the $30 mark for the first time in 5 years Monday, on fears about more subprime-related losses and massive job cuts. The shares closed 6% down at $29.80, and have now fallen some 46% this year, wiping out around $129bn of market value in just 11 months. The news agency quotes Ganesh Rathnam, an equity analyst at MorningStar Inc., who said that the company's current 'stock level is 100% based on fear'.
Rumours swept the financial markets Monday after CNBC reported that Citi is preparing for another round of job cuts, which could see up to 45,000 of the company's 320,000 employees getting canned. Although the firm has denied that it had yet to agree any headcount reduction numbers, the bank did confirm in a statement that 'our business heads are planning ways in which we can be more efficient and cost-effective to position our businesses in line with economic realities'. The cuts are likely to be made throughout the organisation, although the corporate and investment banking units are probably going to be firmly in the line of fire.
The first cuts of the next round of redundancies may be made as early as January, a short while after Citi announces its full-year profits on January 15th. The company hopes to have bagged its new CEO in the next few weeks and would likely want the new top dog to sign off on the job cuts. In the meantime, managers are said to have been asked to start to prepare lists of vulnerable staff. CNBC reports that 'whole departments' may be eliminated as a result of the next round of cuts.
Finally, and on a more positive note, Citi announced Monday that it had raised $7.5bn at a coupon rate of some 11% from the Abu Dhabi Investment Authority to help shore up its balance sheet. The equity units it will sell can be converted into common shares at a later date. Win Bischoff, Citi's acting CEO, said that 'this investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business'. He also said that the investment would allow the company to 'strengthen our capital base'.
'We're hearing that many Citi staff will get small or 'doughnut' bonuses this year. If so, they won't have to worry about cutting heads - many staff will go off to rivals under their own steam'.
'Citi is still the best place to be in the midst of all the current market uncertainty. The bottom line here is that it remains 'business as usual' - we are still doing the biggest deals (IBM, BHP & ADIA). Citi is best placed to weather this storm - and potentially lead the way out of it. With other firms facing similar uncertainty it might be a case of 'better the doughnut you know'. Citi still rocks'.
'Get out while you can - and save your soul!'.
''This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business'. He also said that the investment would allow the company to 'strengthen our capital base'. - Who are they kidin ? At 11%, Citi is several hundred basis points over junk yields - looks like a negative carry trade to me!'.