Speculation mounts about the future of Citigroup and, despite the determination of CEO Vikram Pandit to go it alone, some say that he is no longer the master of his own destiny, as the likes of Morgan Stanley and Goldman Sachs may be mulling a bid.
Morgan Stanley, however, is thought to have cooled on the idea of a deal since CEO John Mack's 'help' call was rebuffed by Pandit last September, a few days after the collapse of Lehman Brothers. Pandit, a former head of Morgan Stanley's institutional securities division, was not interested in a deal at that time.
And Goldman is also said to be crying off, despite its CEO Lloyd Blankfein calling up Citi in September to discuss a possible merger. The boot is on the other foot now though, as it is now Citi which is in trouble. Goldman is said, however, to be concerned about the cultural fit in a Citi deal and also the extent of the firm's future writedowns and losses.
Having said this, Bloomberg reports that CreditSights Inc. says that a Goldman or Morgan Stanley purchase of Citi 'would be significantly accretive' to either firm in terms of future earnings, and could be acquired 'for a relatively low price'. Analyst David Hendler said: 'We sense that Citi's board will also recognise the difficult chain of events which can be brought about by its low stock price, and prefer to take (merger) action in the next few days or weeks'. He added that any buyer 'would probably receive government support if it was needed' - something which might sweeten the pill for Goldman.
The New York Times quotes Oppenheimer analyst Meredith Whitney, who has suggested that a break-up of the Citi empire is almost inevitable. 'Pandit is wrong', she said, 'Citi will not be able to stay in its current form. Citigroup is in such a mess Stephen Hawking couldn't turn this company around. It has lost the most money of all the banks, and has the greatest leverage'.
Pandit and his executive team were locked in weekend meetings with the US Treasury, hoping to come up with some kind of solution which will stem the crisis. The result was another big capital injection by the US government of $20bn, together with a government guarantee of $306bn of the firm's more illiquid assets, in exchange for an additional $7bn stake in the firm. Citi will be prohibited from paying a dividend of more than a cent per share, and will have limits imposed on executive compensation. Whether this is anything more than a short-term fix remains to be seen, but Citi has at least got some breathing space. Pandit appears safe in his job for the moment, although speculation is mounting that he is not long for this world, and that Merrill Lynch CEO John Thain may be the man chosen to come to Citi's rescue. Much depends on how the firm's stock performs over the next few days.
Finally, Bloomberg reports that Citi's Japanese brokerage unit, Nikko Cordial Securities, has offered all the over 40s in its 7,000-person workforce early retirement. That's also gone down like a lead balloon with investors. The news agency quotes Makoto Haga, president of West Asset Management, who summed it up: 'Some talented employees may leave the firm, yet people who have underperformed may stick to the company as the job market is extremely tight now. Citigroup cannot avoid a massive redundancy (exercise) here in Japan'.
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