Dilution Bearable, say Citi Analysts

While Mr. Vikram and Dick "One Way" Bove would never admit it, Meredith Whitney has been driving the Citigroup (C-NYSE) Bus for about a year now. Indeed, she burst on the scene just over a year ago, and life will never be the same for Citi's stakeholders:

November 1, 2007
A longtime banking analyst said late last night that Citigroup may be forced to cut its dividend or sell assets to stave off what she said was a $30 billion capital shortfall, moves that could pull down its shareholder returns for several years.

The analyst, Meredith A. Whitney of CIBC World Markets, downgraded Citigroup’s stock to sector underperform, from sector perform, and called for the bank to bring precariously low capital levels more in line with its peers.

“We believe the stock will be under significant pressure and could trade in the low $30s,” she wrote.

Yes, it has been quite a year for Whitney; her bold call provoked death threats and even sniping from jealous co-workers who were later handed pink slip by Bud Lowenthal, Proprietor of Oppenheimer. And whether or not Steve Eisman spoonfed her, as was alleged earlier this year, is now irrelevant. She ran with the ball, and the rest is history.

But now she is showing signs of greatness, and flexibility. Even her critics must admit this call from earlier today, which was duly noted by the FT, shows a rare ability on Wall Street. To get it right, that is.

We see C, as a stock trading under $5, as a speculative investment and appropriate for risk-tolerant investors.

On a pro forma basis, including the $25B in TARP capital from the Treasury, C’s Tier 1 ratio as of 9/30/08 would have been ~10.4%. Pro forma, Tier 1 capital, subject to Federal Reserve Board approval, is expected to be approximately 14.8% and its TCE/RWMA ratio would be approximately 9.3%

But a contender to her throne has appeared.

Can an analyst from Morningstar steal her thunder?

Sure, this girl’s got game. We flagged Jaime Peters video this weekend, and lo and behold CNBC’s Fast Money put her on the show this evening.

Jaime ran the numbers on Citi’s capital injection, and can live with the consequences, as it is not terribly dilutive to equity shareholders. 

Is Citi staying intact? It looks that way, and Mr. Vikram and his band of merry men were able to tap the lenders of last resort. 

That would be U.S.

Crack a Mama Juana, or even a beer, and check out the video. You have earned it.
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Whitney on Citi: a “speculative investment”
FT Alphaville

November 1, 2007
Market Advance Goes Up in Smoke
1440 Wall Street
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