Whitney: Citi’s Numbers Don’t Add Up

Meredith Whitney’s assault on the financial supermarket known as Citigroup continues. The company continues to maintain that the dividend is secure, but speculation is mounting that they might have to monetize assets, such as their stake in Legg Mason, in order to fund the payment. The potential disposition of their stake in Legg is weighing on that stock today.

Still, CIBC’s Whitney is sticking to her guns despite the calls from battered investors who are deingrating her comments and threatening her life. Ah, the joys of the SellSide. Her comments on FOX Business News earlier today are as follows:

“In our opinion, the numbers don’t add up.  They’re taking an $8 billion to an $11 billion charge in the fourth quarter, which actually reduces their outstanding capital and we expect them to put more assets back on the balance sheet so their capital ratios are going to look worse after the fourth quarter and I think they’re going to be under pressure to cut that dividend.”

Whitney is also tearing into the company’s disparate divisional structure, claiming that Citi does not have a handle of its exposure across all of its operations due to perennial under investments in technology:

“The problem is that they just never invested in technology, and as a result, their equivalent of the mortgage business speaks Cantonese while their credit card division speaks Mandarin. They’re effectively running separate companies under one organization and, as a result, they don’t have any of the benefits from having these separate pods. So, good on paper, but not good on execution.”

“This company basically has to spin-of assets because now the technology investment is so cost-prohibitive that they can’t do it as a consolidated entity.” FOX Business

“No doubt they have to sell assets; no doubt they’re going to have to raise some sort of capital and both of those things will put pressure on earnings, which ultimately puts pressure on their ability to pay shareholders a dividend.”

Overseas operations are bolstering many U.S. multinationals, but Citigroup unfocused business lines might be one exception, according to Whitney:

“Let’s be fair here.  Their international business isn’t making any money - their international consumer business, that is. They just bought Nikko Cordial and now Japan’s economic condition is subject to anyone’s guess.  Their international divisions aren’t really growing, aren’t really making any money.  They bought these international divisions for the sake of international revenues but the reality is that the US economy is slowing, particularly with the US consumers so the credit card business hasn’t grown in three or four years, and now the mortgage business, obviously because of the housing sector, isn’t growing, and now the capital markets business has all but ceased to grow.  So, bad things all around are happening with the company.”

Whitney is getting a lot of mileage from her call.. Throw in new lows for Moody’s (MCO-NYSE), imploding mortgage insurers, brokerage stocks falling apart, and homebuilding executives throwing in the towel, and you have the makings of a nasty start to the week.

Oh yeah, the Russell 2000 just turned negative year-to-date as well.
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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. No Positions in securities mentioned

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