Rise and fall of Citigroup

AsiaOne
Rise and fall of Citigroup
Zhen Ming
Boston Brahmin
Mon, Dec 01, 2008
The New Paper

YOU could almost sense that nervous, somewhat uneasy, almost palpably put-on calm among staff when you walked into any Citi Singapore branch last Monday morning.

But staff at the Singapore unit of Citigroup soon heaved a huge sigh of genuine relief on news of the US government's enhanced bailout package costing up to US$288 billion ($435 million) in capital and guarantees.

Privately, some staff, fretting over the prospect of 52,000 job cuts across Citigroup's worldwide operations, had spent a sleepless weekend wondering if they were next on the chopping block - even though it was announced that no more than 250 jobs (out of a total of 9,100 in Singapore) would be affected.

Calming ads

Citi Singapore had, in fact, gone to great lengths on all fronts to restore calm in recent days - taking out full-page newspaper advertisements to reassure its clients and sending e-mail updates to encourage its staff.

And now that Citigroup will live to fight another day, what lies ahead for this 'Citi that never sleeps' - a financial conglomerate that still boasts some 200 million retail account holders in 106 countries (roughly, one in every 32 people on this planet)?

An appropriate answer to this nagging question later on, I promise.

Changing fortunes

But first, let me retrace Citigroup's swiftly changing fortunes by tracking the highs and lows of its share prices during the past couple of years.

Towards the end of 2006, barely two years ago, Citigroup was, by far, the world's largest bank by market value. Not even ICBC, the world's current Number One, could come anywhere close to Citigroup in asset size and geographical reach.

Citigroup's share prices achieved an all-time high of US$57 apiece on 28 Dec 2006 - giving the bank an assumed market value of US$311 billion (assuming it had the same number of shares then that it has today).

Singapore investment

Earlier this year, on 15 Jan, when the Government of Singapore Investment Corporation (GIC) announced its decision to invest US$6.88 billion in Citigroup, the bank's shares were still worth US$26.94 apiece.

On Wednesday, Citigroup shares were US$7.05 apiece - giving it a market value of about US$38 billion.

Based on Wednesday's US$38.4 billion total market value for Citigroup shares, if the GIC were to convert its perpetual convertible securities into an estimated 4 per cent stake, then these shares would be worth a ballpark US$1.54 billion - that is, a paper loss of roughly US$5.34 billion.

Thankfully, Singapore's investment in Citigroup has built-in safeguards that allow the GIC to hold on to its interest-bearing 'perpetual convertible securities' until the day Citigroup share prices could hit the (publicly unknown) conversion price.

Meanwhile, the GIC will still get to collect a dividend of 7 per cent on the value of original sum invested for as long as we choose to do so. That 7 per cent works out to a fairly handsome payout of US$482 million a year.

Pain is not over

But Citigroup's sufferings aren't over yet.

When its shares tumbled last year on the bank's subprime mortgage woes, angry investors sued for fraud.

Now, stockholders are due to file a new version of their lawsuit as their losses have become much more stark.

A consolidated shareholder complaint in the case is scheduled to be filed in the US District Court in Manhattan by Monday.

An earlier version accused Citigroup and several individuals, including former CEO Charles Prince, of violating securities law by artificially boosting the bank's stock price by concealing its exposure to subprime-linked debt.

Citigroup believes the lawsuit 'is without merit, and will defend against it vigorously,' company spokesman Mike Hanretta said on Tuesday.

Meanwhile, how big do you think is the US$272 billion lost to date?

It is 1.8 times the size of Singapore's GDP for 2007. It is almost 1.4 times the worth of Coca-Cola and Google combined.

Zhen Ming, a Harvard-trained economist based in Singapore, is a freelance contributor.