RIP Citibank?

We should all pause and note the astonishing price of Citi’s stock. Today it fell below $1.00 for the first time. Its highest point was $57.00 back on December 18 2006. That’s quite some fall. This collapse in value represents all sorts of problems, not least of which is the NY Stock Exchange rule that all stocks listed on the NYSE must have a value of more than $1.00. That rule has been temporarily suspended for Citi because of the ‘extraordinary’ circumstances. Normally a company’s managers would have only thirty days to present a plan to the NYSE explaining how they propose restoring their stock price to a more acceptable level. Right now I imagine Citi’s managers have no idea how to do that: no one wants to buy stock in what is, by all sensible reckoning, a dead bank. If you think I am exaggerating then go check the interest rate on Citi’s junior subordinated debt: 26%. That’s quite a risk premium considering the risk free rate on such things as government bonds is practically zero. The market clearly doesn’t think Citi is long for this world. Since when does a 26% risk premium indicate a healthy organization? That ‘misunderstanding’ the market has, according to Geithner, concerning Citi’s true worth is evidently quite large.

Meanwhile back in Tim Geithner’s parallel universe: the government already took a big slice of ownership last week. We taxpayers are now the proud owners of about 36% of the bank, which according to today’s price is pretty much a worthless investment. Today’s drop in stock price means that the ploy of converting the government holding from preferred stock into equity in order to reassure the markets as to Citi’s capital ratios obviously was a dud. But then only Geithner and his advisors thought it might work.

More interestingly the Treasury announced, while converting their preferred stock into common equity, that Vikram Pandit, the current CEO, would stay on in his job. I find that odd. Since when did a 36% ownership stake give someone the right to dictate who stays or leaves the executive floor? Seems like the Treasury is acting like a majority owner. But we mustn’t admit that, so let’s pretend not to notice.

With the stock below $1.00 I wonder how long this pretense of independence can be maintained. The charade is getting less convincing by the day.

And so another day drifts by without any word from Geithner and crew as to why the refuse to countenance nationalization. The absurdity of one of our major financial institutions running the risk of being kicked off the NYSE because its stock has now reached junk status apparently doesn’t phase the Treasury Department at all.

This is borderline farce.

How many times do I have to say? Nationalize now!