When In Trouble, Double?

by StockJockey

Wednesday, March 05, 2008 - 9:40 am

Double-down that is. The timing of recent investments in U.S.-based financial firms were a bit off. It is not sitting well with the Chinese, who might soon become the largest holder in Bear Stearns (BSC-NYSE):

Citic Securities, China's top brokerage by assets, is in talks to get a bigger stake in Bear Stearns Cos Inc to reflect a drop in the share price of the Wall Street bank since the two firms agreed to swap stakes last October, a CITIC executive said on Wednesday.

Kong Dan, chairman of parent group CITIC Group, told reporters that the talks would push ahead quickly. He gave no further details.

Kong's comments were the first confirmation by CITIC of reports last month that it was seeking to reopen the terms of the deal, which would make it the largest single shareholder of the fifth-largest U.S. investment bank, to reflect market price changes. Reuters

Bear is not alone. The speculation over Citigroup's capital position hit a crescendo yesterday. Dick Bove's recent upgrade of the brokers was only a move to neutral, in general, but he spent his bullet after a steep ramp. The selloff and lousy sentiment has him lashing out:

"We're in the midst of a panic that is similar to the panic that existed in the early '90s," says Richard X. Bove, an analyst at Punk Ziegel who rates Citigroup a Buy. "You won't find a single human being on the planet to say anything positive about Citigroup, which is why you may want to own it," Mr. Bove says WSJ

Sorry Dick, if we need an idea that actually makes money we will call Meredith Whitney. But he does have a point; Vikram Pandit held a conference call last night with his top lieutenants reassuring them that they are adequately capitalized, and will free up additional capital from shedding “legacy assets” mostly consisting of exotic securities on the balance sheet.

You can’t blame the sovereign wealth managers for trying to talk down the market; they want to invest at lower prices.

Bottom picking Citigroup has not been a game for widows and orphans, and analyst hysteria will likely put the bottom in the stock. Was yesterday the charm? We have been wrong before, thinking the decline had largely run its course five points higher, and time was now the biggest enemy.

When in trouble, double-down? The phrase is well known as gallows humor for analysts that got spanked in big positions and had to explain themselves in front of the investment committee; but throwing good money after bad is not always the best strategy.

Vikram Pandit would likely endorse it in this case, however.

CITIC confirms talks to reopen Bear Stearns deal
Reuters
-----------------------------------------------------------------------------------------------------------------------
The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.