Monday, July 18, 2011

Pity Poor Citi?

The weekend edition Wall Street Journal's Heard on the Street column was actually laughable.

David Reilly argued that Citigroup's market/tangible book value is too low. Specifically, it's below that of BofA. Thus the title of Reilly's piece, Let Citi Out of Doghouse.

Let's see.....a bank run by a guy who's never done commercial banking, nor run anything large, which operated itself into insolvency under the guy's predecessor, a lawyer, should now be treated as a brand new bank?

I don't think so.

Mediocre as it is, BofA at least didn't technically need to be rescued by the Fed, while Citi would have been in Chapter 11 without the government's stay of execution.

As an example of corporate cronyism, poor board performance and overall ineptitude, it would be difficult to find a better one than Citigroup during and after the Weill-Rubin years.

Meanwhile, novice CEO Vik Pandit has done nothing appreciably significant but ride out the resulting storm and manage to cling to his job. The government and financial markets did the rest.

And this is reason to suddenly improve its valuation?

Hardly. Look at the nearby price chart of the four large US commercial banks and the S&P500 Index for the past five years. Performances since the financial crisis are, to me, expectedly similar. A few minor differences, with BofA recently diving. But, for the most part, all four are pretty much flat since the beginning of 2009, as is the S&P.

Like all four of the largest US commercial banks, Citi is simply a government-backed financial utility that wouldn't even actually need a CEO to run it anymore. Any investments in the equity of Wells, Citi, Chase or BofA is, at best, a timing play. Nothing more.

Their total return performances are all, to varying degrees, depending upon their specific business mixes, more vulnerable and dependent upon market conditions, rather than the micro-management of the banks themselves.

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