An Investment Banker's Take On Life: Citigroup: What Will Monday Bring?

Extrapolating from recent Wall Street history, discussion boards are busy speculating: What will Monday bring for Citigroup? The probability of something eventful happening to the bank tomorrow appears high, based on the pattern observed here:

Too much things happen over the weekend this year. Bear Stearns bailed on the weekend, Lehman Brothers failed on the weekend, Merrill Lynch bought by Bank of America over the weekend, Fannie and Freddie took over happen at the weekend, Wachovia acquired over the weekend. And here goes again, Citigroup. What is gonna be the headline on Monday? God bless shareholders!!

Citi's shares slid to $3.77 last Friday, its lowest level in 15 years, despite an earlier decision by Saudi Prince Alwaleed bin Talal to raise his equity stake from less than four percent to five percent. The bank's shares have lost about 60 per cent of their value in the last five days alone. The market apparently was not impressed by the Saudi investor's action which, in hindsight, may have been too little too late. Neither did media's reporting of Vikram Pandit's town hall meeting with employees on Monday help, where he announced an additional cut of 53,000 jobs to make Citi leaner, reiterated the strategy of being a truly global universal bank, and assured that Citi has adequate capital to weather the present crisis.

Can Citi be saved? Fortunately, others have analyzed the possible scenarios for Citi, sparing us the trouble of doing our own from scratch. Time.com looked into the following most likely scenarios:

Click those links if you want the discussion for each of the scenarios.

Madlen Read of the Associated Press, on the other hand, identified these scenarios:

An outright sale;
Selling off the businesses in a particular region; and
A merger.

These are likewise explained in more detail here.

The above scenarios are by no means exhaustive. Just a quick look at them and you could tell that they are not strictly mutually-exclusive. This means that additional scenarios could be generated by combining some of the options. Also, some other possibilities may not be in the above lists yet. On combinations, for instance, a change in management can be implemented side by side with an Uncle Sam rescue. As for options not yet listed above, why is raising more cash from outside investors being excluded? It is still in the realm of possibility, albeit very slim.

I will leave my rhetorical question unanswered. I don't have access to the kind of information that would give me confidence to make a fearless forecast on what Monday will bring to Citi. It could very well be that Monday will come and go just like that, allowing Citi to live another day.

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UPDATE-November 24, 2008

So, we now have the answer to my question. Citigroup apparently belongs to the too-big-to-fail list. The U.S. government announced over the weekend that it will come to Citi's rescue in the form of:

A $20 bilion cash infusion from the Treasury; and
A $306 billion guarantee on risky assets.

In return for these, the rescue term sheet indicates that the federal government will get $27 billion of preferred shares paying an 8 percent dividend. These preferred shares come with warrants to buy 254 million Citi shares at $10.61 each. Moreover, the bank is required to cut its quarterly dividend to 1 cent a share (from the 16 cents paid this quarter). Oh, did I say that Vikram Pandit gets to keep his job? Lucky guy.

If you want more details, click this.