Tuesday, December 2, 2008

Comments: Citigroup, Prudential/ GE EMR BAC

I read Andrew Sorkin's column in today's NYT about putting a value on Citigroup's CEO.  NYTimes.com  My assessment of the situation is that the team that led Citigroup to a near death experience had a negative value of at least 40 billion dollars.  Corporate Bonds, Citigroup & Robert Rubin, DKR  So, I am not sure what Andrew means by saying Citigroup needs "to find ways to keep ... talented people".  After reading so many articles about the greed and incompetence of those who led us into this crisis, including the excellent articles contained in Mr. Sorkin's paper, I have not yet seen anything remotely resembling "talent".   Where exactly is this talent hiding?  The NYT's articles assembled under the heading "The Reckoning" surprised even me about the extent of incompetence and avarice at the highest levels in our major financial institutions.  The New York Times   There is no doubt in my mind that the compensation schemes of these institutions actually fostered the kind of irresponsible risk taking that ultimately undermined many of them and contributed to the worst financial crisis since the Great Depression.  The blame squarely falls on the U.S. financial institutions and primarily a small number of absurdly compensated "talent" at each one.  As for Mr. Pandit, why exactly is he the CEO of Citigroup? Yes, I know he made a lot of money selling his hedge fund to Citigroup for 800 million, and it had to be closed later due to its losses.  Is he someone like Jamie Dimon that has spent his adult life proving himself to be an able banker?

I generally avoid watching more than a few minutes of Jim Cramer.  He seemed to have drunk more coffee than usual last night.  I did not understand his argument why the government's bailout of Citigroup was not a bailout.  Apparently, he thought that it was not a bailout since the shareholders were not torched by the government. I certainly agree, however, with his statement that Paulson's sacrifice of the Fannie and Freddie preferred shareholders made the current crisis even more severe since it cut off the main pipeline for raising capital by all financial institutions, namely selling preferred shares.   

Fitch downgraded the the senior debt rating of Prudential to A- from A.Yahoo! Finance  I generally follow any news relating to my bond positions and I have holdings in both short term and long term debt of Prudential.  This downgrade will not impact my decision to add some to the long bond side of my current holding.  

GE and Emerson Electric (EMR) both announced disappointing guidance.  GE lowered its guidance for the 4th quarter to between $.50 to $.52 from an earlier estimate of $.50 to $.56. MarketWatch  Yahoo! Finance  Emerson said orders declined up to 10% in October.Reuters  Citigroup cut Emerson to hold from buy and cut MMM to sell.MarketWatch  Part of the problem for these multinationals is the strengthening dollar.  I have a very small position in Emerson, a larger position in GE, and I have sold out of MMM.

Citigroup also cut its price target for Bank of America to $22 from $38 and highlights the possibility of another dividend cut. MarketWatch  I would anticipate another dividend cut.  The banks are simply proving to me once again that they will find innumerable ways to shoot themselves in the foot and their ingenuity in finding new ways even comes close to  rivaling  Vanderbilt football's creativity in how to lose.  

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