3 ways to fix citigroup

3 ways to fix citigroup quotes:search:homestock researchdiscussion boardsquotesmy foolcapsnewsinvestingretirementpersonal financefool's schoolfeedbackhelpwelcome loginsign up choose a broker today's headlines products & services asia rising caps beta champion funds discussion boards fool credit card global gains hidden gems income investor inside value million dollar portfolio pay dirt rule breakers rule makers rule your retirement stock advisor tmf green light more... investing bonds broker comparison etfs index funds mutual funds stock ideas more... personal finance 401(k) calculators credit reports home buying/rates insurance iras savings/cds taxes travel center more... site changes rss headlines sitemap/more topics email subscriptions media center work at the fool email print contact us digg delicious rss the most foolish recommended read emailed recent most recommended articles published in the last 7 days the sky is falling bernanke's plan to pick your pocket marvel is a screaming buy tomtom to garmin: oh, it's on, baby just another quarter for berkshire how to profit from this incredible fiasco quit calling akamai expensive 3 stocks to buy in 2008 10 time bomb tickers nothing scary about dryships' profits most searched value investing articles related tickers caignyxshldusbwfc citigroup, inc. c $35.90 +2.33 (+6.94%) [4:00 pm] caps rating: 2277 outperforms 498 underperforms rate this stock related articles about c the millionaire in the next cubicle[11/13/2007 2:25:00 pm] 2 ways to value a company[11/13/2007 11:24:00 am] the lesson from e*trade[11/12/2007 4:17:00 pm] c rss feed major indices s&p 5001,481.05+2.91% djia13,307.09+2.46% rsl 2k789.15+2.88% nasd2,673.65+3.46% updated: 4:03:34 pm sponsored by: the motley poll have you ever been a victim of identity theft? yes: accounts were opened in my name yes: charges were made to my credit card or bank account no sponsored by: sponsored by value investing 3 ways to fix citigroup by emil lee november 5, 2007 12 recommendations it's been quite tantalizing to watch citigroup's (nyse: c) shares sink to five-year lows -- buried underneath the horrible news headlines lies an unparalleled money-making machine. i'm no financial genius, but i believe there's a simple way to unleash citi's potential and send its shares skyrocketing. act 1: capital restructurefirst off, citi needs to shore up the balance sheet, even if that means cutting the dividend or diluting current shareholders -- no short-term pain, no long-term gain. after all, a bank relies on its balance sheet to extend loans and pay depositors, so it's better to make sure the patient is fully rehabilitated before sending it back out into the business jungle. thus, citi's management should place a couple of calls to the likes of warren buffett at berkshire hathaway (nyse: brk-a) (nyse: brk-b), eddie lampert at sears holding (nasdaq: shld), and saudi arabian prince alwaleed bin alsaud (a major shareholder) to raise somewhere in the neighborhood of $25 billion to $30 billion, the amount cibc analyst meredith whitney suggested citi needs to remain healthy. sure, raising additional capital would dilute current shareholders by about 10%-15% (depending on the conversion premium), which is a slight negative, because current shareholders will thus own less of the company. however, i think a little dilution is a minor price to pay to fix the balance sheet and reposition citigroup for future success. act 2: instill confidenceciti's problems are neither structural nor pervasive among its distinct collections of strong businesses. for example, the problems with structured investment vehicles (sivs) and collateralized debt obligation (cdo) credit quality do not hinder citi's ability to offer wealth management services at the smith barney division, or credit cards to consumer bankers. the problems are localized and fixable. after raising that $25 billion, citi could amputate the tumor by effectively getting rid of its exposure to credit-sensitive securities. keep in mind, i am not suggesting that citi have a fire sale of its cdos and leveraged loans. rather, armed with a $25 billion war chest, citi could resecuritize, hedge, and insure its troubled securities to get rid of the malignant credit tumor. this should help shunt exposure to its estimated $55 billion in remaining subprime exposure (for which citi estimates it may need to take an additional $8 billion to $10 billion loss), $80 billion in sivs (although it doesn't bear credit risk, it has some liquidity risk), and $57 billion in leveraged loan commitments as of the latest quarter. in addition, the announcement of former treasury secretary robert rubin as interim chairman should provide a psychological boost to the credit markets. rubin's role will be to pick a new ceo, with possible candidates including john thain, current ceo of nyse euronext (nyse: nyx); robert willumstad, citi's former coo and current chairman of aig (nyse: aig); and vikram pandit, who heads up citi's alternative investment businesses. installing a ceo with a track record as a skilled operator, and more important, one with risk management skills, should help boost citi's stock. act 3: break it up!citigroup's shares trade at a huge conglomerate discount. boutique investment banks like greenhill and lazard, wealth managers like raymond james, and diversified consumer banks like us bancorp (nyse: usb) and wells fargo (nyse: wfc) trade in the 20, 15, and 12 times trailing price earning multiples ranges. citigroup, which boasts extremely competitive positions in most of its businesses, should trade near or at a slight discount to these multiples -- shares are currently trading at less than eight times 2008 earnings estimates. if citigroup simply split into consumer banking, capital markets, and wealth management divisions, it would almost certainly increase in value, become much more nimble, and remove layers of bureaucratic expenses. the synergies of the financial supermarket model have never worked. sure, it makes sense for consumer banks to offer credit cards. but it doesn't make much sense to pair an investment bank and a consumer bank. jane or joe schmo won't walk into a bank, deposit $100, and then ask for merger and acquisition advice. so there you have it. anyone who has ever read "you can be a stock market genius" can attest to the fact that spin-offs handily outperform the market once freed from an onerous and bureaucratic structure. it may be time for citi to regroup, spin off into separate businesses, and finally allow its shares to beat the market. related foolishness: and the world's scariest stock is ... stop being greedy and you'll make more money what you don't know about peter lynch get the best of the fool delivered to your inbox every friday your email:    berkshire hathaway is a stock advisor pick. nyse euronext is a rule breakers selection. us bancorp and berkshire hathaway are inside value recommendations. try any one of our investing services free for 30 days. fool contributor emil lee is an analyst and a disciple of value investing. he doesn't own shares in any of the companies mentioned. emil appreciates your comments, concerns, and complaints. the motley fool has a disclosure policy. email print feedback digg delicious rss compare brokers td ameritrade more info sharebuilder more info power e*trade more info compare all more info fool disclosure documentid: 539725, ~/articles/articlehandler.aspx, 11/13/2007 11:52:49 pm home about the motley fool email subscriptions newspaper column work at the fool contact us advertise fool disclosure help site map rss headlines fool friends: yahoo finance, msn money, aol money legal information ©1995-2007 the motley fool. all rights reserved. 219ms useq\eqweb06

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