Wednesday, February 17, 2010

Hedge Funds Pile into Citigroup (C); as Does Bruce Berkowitz of Fairholme Funds

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According to this Bloomberg story, Citigroup (C) is getting a massive amount of love from the hedge fund community... along with Morningstar's mutual fund manager of the decade Bruce Berkowitz.  I wonder if the taxpayer will get a hand written thank you note from the speculator class (of which I am one!).  On one side you have implicit taxpayer support and on the other you have a Federal Reserve which has thrown American savers under a bus so that our oligarchs - Citigroup front and center - can make money in their sleep by borrowing from the Fed at nearly zero and charging the American people any figure over and above 0.25% for their borrowings.  (rob from the many to give to the few, reverse Robin Hood style)   Now this is a business model, any competent 1st grader could handle at their lemonade stand, but let's bonus these banking executives up the wazoo (there are only a few on the planet who could run such a business corporate social welfare machine) for their incredible skill at navigating what is the biggest corporate handout in the history of the US. 

I still have no idea how to analyze Citigroup (does it still have those infamous off balance sheet accounts ala Enron?) but since the government says Citi is a cockroach that cannot be allowed to die, the investment community seems happy to pile in.  Or perhaps they are all just copying John Paulson... "if Paulson says it's ok, it must be ok!". [Aug 26, 2009: Citigroup Surges on John Paulson Investment]
  • Firms run by John Paulson, Eric Mindich and George Soros purchased almost half a billion shares in Citigroup Inc. last quarter as more than 120 hedge funds said they bought stock in the bank.   Paulson & Co. reported a stake equal to 506.7 million shares in New York-based Citigroup, up from about 300 million at the end of the third quarter, according to a government filing yesterday. Mindich’s Eton Park Capital Management LP acquired 138 million shares, making the company its largest holding. Soros Fund Management LLC reported 94.7 million shares worth $313.4 million.
  • Citigroup stock bought by hedge funds outnumbered the amount sold by a ratio of more than 10 to 1 in the October-to- December period, with about 1.2 billion shares added on a net basis, according to Securities and Exchange Commission filings compiled by Bloomberg.
  • Fairholme Capital Management LLC run by Bruce R. Berkowitz, named U.S. stock mutual-fund manager of the decade last month, bought 214.7 million shares valued at $710.7 million. Hedge fund manager Daniel Loeb’s 15-year-old Third Point LLC also took a new position, adding 25 million shares worth $82.8 million. 
  • The shares traded for an average of $4.10 in the quarter, 24 percent above its closing price yesterday of $3.31, data compiled by Bloomberg show. Citigroup posted a $7.6 billion fourth-quarter loss on costs to exit the U.S. bailout program, giving the company its second straight unprofitable year. Chief Executive Officer Vikram S. Pandit booked an $8 billion pretax charge when he repaid $20 billion of bailout funds in December. Revenue missed analysts’ estimates as trading results fell from the third quarter, helping push the shares down 9.3 percent from their 2010 high. Taxpayers still own 7.7 billion Citigroup shares, and Pandit failed to restore the bank to profitability in his second full year in the top job.
  • Investors may be betting on a rebound in Citigroup after it lost as much as 94 percent of its value during the credit crisis. The purchases came in the same quarter that the third- largest U.S. financial company sold more than 5 billion new shares to help repay government bailouts.
  • Citigroup is forecast to earn 9 cents a share this year, or 2 percent of what it made in 2005, based on Bloomberg’s analyst survey. That’s partly because Citigroup has had to issue almost 23 billion new shares to bolster a weakened capital base. Investors who were shareholders prior to the financial crisis were left with about one-fifth their original stakes.
  • Hedge funds may be speculating on a break-up of Citigroup into individual businesses, according to Diane Garnick, a New York-based investment strategist at Invesco Ltd., which manages about $400 billion.   “The sum of the parts is worth less than each individual part,” said Garnick. “It is easier for investors to assign value to a company if it is broken up into its many component parts. In this market environment people are starting to reward single business unit companies.”
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