Friday, March 6, 2009

Morons In The Citi

On 17th February 2009, we were shocked by the massive 50 billion Singapore dollars that GIC had lost on our behalf...

Singapore's GIC losses about 33 bln US dlrs
Source: Yahoo! News

SINGAPORE, Feb 17, 2009 (AFP) - Government of Singapore Investment Corp, which has helped bail out troubled global financial institutions, suffered an investment loss of about 50 billion Singapore dollars (33 billion US) last year, sources told Dow Jones Newswires on Tuesday.

In late 2007 and early last year GIC injected billions of dollars into Swiss bank UBS as well as US banking giant Citigroup, both of which suffered massive losses from US subprime, or higher-risk, mortgage investments.

Subprime troubles later evolved into the worldwide financial slowdown.

"The loss on the investment portfolio last year is estimated at around 45 billion to 50 billion," one of two people familiar with the GIC situation told Dow Jones.

"But, GIC has no thoughts to sell down any of its major investments. They'll wait until they recover."

UBS this month posted an annual loss of 17 billion US dollars, the largest in Swiss corporate history, and announced 2,000 new job cuts.

A second person said GIC's investment loss last year was "recently estimated to be similar to Temasek's."

The portfolio of Singapore sovereign wealth fund Temasek Holdings, which helped bail out Wall Street icon Merrill Lynch, fell about 31 percent over eight months last year, Senior Minister of State for Finance Lim Hwee Hua told parliament last week.

She said Temasek's portfolio of investments fell to 127 billion dollars at the end of November, down 58 billion from 185 billion dollars on March 31 last year.

Lim said it was not the first time GIC and Temasek had seen major declines in markets, and that GIC had "creditable returns" over the 20-year period to late 2008.

Asked for comment on the Dow Jones report, a GIC spokesman said the firm did not comment on "speculative reports".

GIC, one of the world's largest sovereign wealth funds, in September said its nominal rate of return over the 20 years to March 31 last year was 7.8 percent in US dollar terms.

"Temasek and GIC are long-term investors, and should be evaluated as such," Lim said. "GIC and Temasek have the ability and resources to weather the ups and downs, over multiple economic and market cycles."

On 28th February 2009, we were ruffled by the high price of USD3.25/share that GIC was paying to convert Citigroup preferred shares into common stock, when its opening share price was USD1.67.

Singapore GIC converts Citi notes, pays $3.25/shr
Source: Yahoo! News

SINGAPORE, Feb 27 - Sovereign wealth fund the Government of Singapore Investment Corp said on Friday it will convert its Citigroup preferred shares into common stock in a bid to shore up the troubled U.S. lender.

GIC said it would exchange its convertible preferred notes to common stock at a price of $3.25 a share. Based on Citi's opening share price of $1.67 on Friday, GIC has realised a loss of around half its investment. This also compares with the conversion price of $26.35 under the terms of the original investment.

GIC said its stake in Citi would rise to an estimated 11.1 percent.

"It now means GIC are in the real danger zone. Equity holders are the first to absorb any losses. Or if the Treasury decides to inject more capital, they will get diluted," said an analyst at an investment bank, who declined to be indentified.

GIC is Singapore's largest wealth fund with an estimated $300 billion in assets. Its sister fund Temasek Holdings [TEM.UL], which also invested in global banks and lost over $2 billion on Merrill Lynch, saw its portfolio drop 31 percent in the eight months to November.

Singapore has only said GIC outperformed global equities in 2008. The government tapped its reserves for the first time for a budget stimulus package in January to try to cushion the country from its worst ever recession.

GIC bought in January 2008 about $6.88 billion worth of perpetual, convertible notes in Citi that pay a 7 percent annual dividend. At that time, the notes could be converted into about 4 percent of Citi's expanded capital.

Preferred shares are similar to bonds in that holders received a fixed dividend instead of dividends that may vary depending on the firm's performance. By getting preferred shareholders to convert their holdings into common stock, Citi would be able to reduce its quarterly dividend payment.

"GIC supports the initiative by Citigroup and the U.S. government to strengthen the quality of the bank's capital base," GIC said in a statement.

Shares in Citigroup were trading 32 percent lower at $1.67 in early trade by 1445 GMT on Friday after announcing a deal that would increase the U.S. government's stake in the bank's common stock. [ID:nN27210042].

"Citi needs support right now and that is what the U.S. Treasury and investors are providing," said David Cohen of consultancy Action Economics.

"Hopefully they can be rewarded as they are trying to help clean the mess in the global financial system. If you are not willing to take a risk, you can't achieve a return."

GIC's executive director Tony Tan said this month unleveraged global investors such as sovereign wealth funds will pay a more important role in future as hedge funds and private equity find their activities constrained by tighter borrowing restrictions.

Western governments, which have taken large stakes in banks to prop up their financial systems, will eventually have to "re-privatise" assets on a massive scale and will need to attract long-term institutional investors like sovereign funds when markets stabilise, he said.

Today on 6th March 2009, we are staring at Citigroup's share price dropping below USD one dollars.

Citigroup stock falls below $1 a share
Source: Yahoo! News

CHARLOTTE, N.C. - Shares of Citigroup Inc., once the nation's most powerful bank, fell below $1 a share Thursday.

The stock fell as low as 97 cents in late morning trading. It was down 11 cents, or 9.7 percent, at $1.02 in mid-afternoon.
New York-based Citi has lost more than 85 percent of its value so far this year, and is down more than 95 percent from a year ago as the bank was pummeled by the financial market crisis.

Citigroup's shares will remain on the New York Stock Exchange. Last week, the NYSE relaxed its listing rules to allow stocks that fall under $1 to still be listed and traded on the exchange.

The exchange said the change was warranted given the "current period of unusual market volatility and decline."

Ordinarily, an NYSE-listed company's shares cannot remain below $1 for more than 30 consecutive days. If that happens, the company gets about six months to prove to the NYSE it can boost its stock price.

Citigroup used to be not only the largest bank by assets, but also by market capitalization, which has now been decimated by the stock's decline. At the start of 2007, its market cap was riding high at around $270 billion. But by March 2008, it had fallen below the $100 billion mark. Now, it's at $6.2 billion.

As the recession deepens, the problems facing Citigroup _ souring loans and the impact of the recession _ are only getting worse.

On Friday, the government agreed to exchange up to $25 billion in emergency bailout money given to Citigroup for as much as a 36 percent equity stake in the company. The government, along with other private investors, will convert some of their $45 billion in preferred stock into common shares. If the maximum amount of preferred stock is converted, current common stockholders will see their ownership stake fall to about 26 percent.

The deal between the Treasury Department and the bank is the third rescue effort in the past six months.

The problem is the market knows Citigroup received no new capital last week. The conversion to common stock will create a wider equity base aimed at keeping investors calm as the economy deteriorates _ but Citigroup still has $45 billion in Troubled Assets Relief Program funding, the same amount as it did before. The switch to common stock will help boost Citigroup's "tangible common equity," Wall Street's and Washington's new favored gauge of banks' health.

Citigroup, criticized for years for being too multi-tentacled, has already sold off several businesses over the past several months.

It has also split into two parts: Citicorp and Citi Holdings _ effectively undoing the merger that created the company in 1998. Citicorp holds the company's "core" businesses like retail banking, investment banking, credit cards and transaction services, while Citi Holdings runs the company's riskier assets, the consumer finance franchises and asset management.

Citigroup, which hasn't turned a profit since the fall of 2007, will face its next test in April when it reports first-quarter earnings.

So who are the smart Alexs in GIC that decided it was a superb idea to invest such monstrous amount in Citigroup? And who are the even smarter Alexs that still insist that this is a sound long-term investment?

Haven't they heard of the term "cut loss"?



No comments:

Post a Comment