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Bill Ackman Purchases 150 Million Shares of Citi


Matson125
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I am impressed by the various well respected investors buying Citi.

 

I don t understand why the government would be selling if it is a good investment. But then again governments have not been known to be great with money.

 

Can gov t afford to be seen as enriching the "rich" ie selling them Citi cheaply to see stock soar. By now the government officials should know what is inside Citi's "blackbox" of loan/asset portfolio. They have to have a better idea what the security is worth than the outside investors.

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The government collects a share of taxable income without needing to put any skin in the game.  This is essentially the ultimate risk/reward proposition.  Therefore, it doesn't make sense for the government to invest in equities -- why buy the cow when you get the milk for free?

 

These people who say that the govt privatizes profits but publicizes losses seem to forget that the public gets a cut of profit from every business without risking any capital. The public get a much better deal than the rich.

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I don t understand why the government would be selling if it is a good investment. But then again governments have not been known to be great with money.

 

Can gov t afford to be seen as enriching the "rich" ie selling them Citi cheaply to see stock soar. By now the government officials should know what is inside Citi's "blackbox" of loan/asset portfolio. They have to have a better idea what the security is worth than the outside investors.

 

Philosophical and political reasons. 

 

The US government's philosophical stance on direct government ownership of enterprise is that we just don't want it if we can help it.  Furthermore, from a political standpoint, it makes a lot of sense for the government to get out with a profit as soon as possible so long as there is no risk of the investee company going under due to their selling out.  The government wants to be able to tell citizens that they made money off the Citi bailout and that they have always been reluctant owners.

 

By the way, it's not clear that anyone else in the world would want the federal government to start getting into investing.  Could you imagine the outcry that would occur globally if the US government set up its own sovereign wealth fund?

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I thought this comment from Ackman was interesting:

 

According to coverage by Barron's Tech Trader, Ackman likened a division of General Growth Properties (NYSE: GGP - News) to a little Berkshire Hathaway (NYSE: BRK-A - News, BRK-B - News) at the conference

 

Anyone have any idea what he's talking about?

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GGP is actually being split into two entities, with one being the traditional cash-flow generating GGP “pro-forma,” and the under-performing but highly valuable assets being put into GGO, which Ackman likened to “our little Berkshire Hathaway (BRKB).”

 

http://blogs.barrons.com/stockstowatchtoday/2010/05/26/ira-sohn-ackman-says-pay-ratings-guys-for-performance/

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TXLAW

 

reviewed old posts.

 

I liked:

 

"I think Berkowitz is looking at C and thinking a few things:

1.) If C earns a 1% ROA going forward, we are talking about $19 billion of net income annually (on current $1.9 trillion b/s), or, ~$0.65 per share...so at today's $3.30 per share you are paying 5x normalized earnings.

2.) The company is overcapitalized and could write down $20 billion tomorrow and you'd still be an owner at below tangible book.

3.) The company is over reserved with reserves to NPA's of 112%.

4.) If the government pushes the banking industry to create more plain vanilla products, the biggest banks will be the biggest beneficiaries as economies of scale will be more important than they've ever been.

5.) The question that I would have for Berkowitz is how much more does he think C will have to shrink the balance sheet?

Any thoughts?"

 

by A hamilton

 

and your post

 

"Reasons for why Berkowitz and now HWIC are in Citi:

 

-We've passed the inflection point for the pig in the python losses

-Gov't ownership acted as quasi-receivership where the government would have closely examined Citi's balance sheet and off balance sheet arrangements; the government would probably not be selling if they did not think Citi could survive more economic turmoil

-Citi is still too big too fail, but the capital markets are in good enough shape that Citi probably could get private capital (or sovereign capital) to help with any further issues they might have, if any

-Citi is overcapitalized and Citi Holdings dispositions and runoff will help serve as a buffer to keep Citi Corp overcapitalized in case of more turmoil, both in the US and abroad

-Low CRE exposure compared to the other big US banks

-New loans are the best loans as we are at the bottom of the credit cycle

-Long term, Citi is in a good position as it is one of the three big network banks (see Economist special report on banking in emerging markets); you can't replicate their network, their payment systems are vital to multinationals and governments, and they will probably continue to win more advisory business from foreign firms

-Citi continues to dispose of non-core businesses and will not really be affected by the push to break up the banks, as that is already an ongoing process at Citi

 

Given all of the above plus the price at which it is trading, it will likely be a great investment over time.

 

Obviously, I own C."

 

Would it appear that C would be a good buy at <$3.25 (50% x $0.65 x 10), assuming conservative/normal earning power of $0.65 & 10 % discount rate

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