Pandit Raises $3 Billion to Bolster Citigroup’s Capital Ratios
Update: They upsized the deal to $4.5 billion Wednesday morning, pricing 178.1 million shares at $25.27.
A win for Meredith Whitney?
Not exactly. Vikram will not be handing her banking business any time soon. Although she was right about Citigroup having to raise more equity capital.
Citigroup Inc., the U.S. bank hit with writedowns on subprime mortgages and bonds, is selling $3 billion of stock two weeks after reporting its second straight quarterly loss.
The shares are being sold in a public offering, New York- based Citigroup said today in a statement. Citigroup already has raised more than $30 billion of capital since December. A weakening U.S. economy and rising consumer delinquencies forced Chief Executive Officer Vikram Pandit to rescind assurances earlier this year that the bank didn't need to raise more funds.
``This was extremely disappointing,'' William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, said in a Bloomberg Television interview. ``We were hoping they wouldn't have to go the equity markets like this.'' Bloomberg
The move will raise Citi's Tier 1 capital ratio to 8.5% from 7.7% at the end of the first quarter.
Although the stock was trading lower by about 3% afterhours, Meredith has missed a chance to get more constructive on the stock. Her blitzkrieg was a thing of beauty, jarring the BuySide out of their coma long enough to fill sell tickets indiscriminately, but the stock is now on the mend thanks to over $30 billion of capital injections, and new 52-week lows seem unlikely at this point.
And while I have a soft spot in my heart for cheeseheads, the folks at Optique Capital in Racine Wisconsin might want to congratulate Vikram on his timing; he priced this deal rather opportunistically given the stock is trading at 3-month highs. Citi had been coy about the need to raise further equity, but they were just playing the game that they had to, and of course received much better terms than if they would have telegraphed the move any clearer.
Well done, Vikram. You never said never, as far as this deal went. But now the focus moves to Ben Bernanke. The last day of the month is no time for heroes, but if Ben’s actions tomorrow can fuel the nascent rally in the dollar, cause commodity prices to soften and drive the S&P 500 decisively over 1400, his critics and the Global Macro funds on the wrong side of the trade will probably call him a number of names.
None of which are fit to print.
Citi 3-month chart
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Citigroup Sells $3 Billion of Stock to Boost Capital
Bloomberg
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