If you carve financials out of the SP500, the overall market really isn’t doing too bad. Those financials make up about 17% of the Sp500 as of Friday (C makes up 5% of those financials and is 5 times a bigger part than BSC). Financials are 37% off their 52 week high, whereas most sectors are off ~15% from their high. Consumer staples, energy and materials are down less than 10%.
Agreed that assuming C can ride out the current crisis (however long it is), it is a screaming buy… However, I would think the market is pricing in a probability that C, and other financials, will be hit by a liquidity crisis (ala Bear Stearns), which will require someone to pump capital in at a discount to current prices thus diluting current shareholders. Whether you buy or not is a function of your assessment of the probability of such a crisis, no?
Syd_RE Wrote: ------------------------------------------------------- > Agreed that assuming C can ride out the current > crisis (however long it is), it is a screaming > buy… > > However, I would think the market is pricing in a > probability that C, and other financials, will be > hit by a liquidity crisis (ala Bear Stearns), > which will require someone to pump capital in at a > discount to current prices thus diluting current > shareholders. > > Whether you buy or not is a function of your > assessment of the probability of such a crisis, > no? I think there’s a decent chance that C will have to look for more external funding from SWFs before this is over - not because they will face a crisis a la Bear, which will absolutely not happen because of C’s size, but because simply to maintain the capital ratios required of them as a bank. They’ve already done this once and obviously there’s some concern about dilution, but ironically I think that fed actions in response to Bear suggest that C may be able to avoid this because the fed will be willing to take “unique” measures that will be very favorable to C. I read a paper the other day that Bernanke wrote while at Princeton about the Japanese crisis, and after reading this I think that if the crisis continues he is willing to try more and more unconventional measures that will be very favorable for the biggest banks. However, I think that the market has already more than priced in the probability of further dilution… My thesis is that as bad as things are, the biggest, strongest players will come out of it stronger than ever. Bear will likely be gone in a month - when things come back, this means one less competitor for C, JPM, GS, etc. in the areas that Bear was strong in. Finally, take a look at a chart of C or any of the big banks from 97-00 (during the LTCM crisis). C dropped like a stone but if you had bought after a 50% decline you’d have tripled your money 2-3 years out. C is now about 2/3 off it’s high…
luke77 Wrote: ------------------------------------------------------- However, I think that the market > has already more than priced in the probability of > further dilution… Are you implying that if C was to announce an infusion of capital (at a discount) from an SWF today, the stock price would not be impacted? I would disagree. > My thesis is that as bad as things are, the > biggest, strongest players will come out of it > stronger than ever. Bear will likely be gone in a > month - when things come back, this means one less > competitor for C, JPM, GS, etc. in the areas that > Bear was strong in. > > Finally, take a look at a chart of C or any of the > big banks from 97-00 (during the LTCM crisis). C > dropped like a stone but if you had bought after a > 50% decline you’d have tripled your money 2-3 > years out. C is now about 2/3 off it’s high… I think the comparison should be to 1987-1992, which was the fallout from a free-wheeling credit environment followed by a housing led recession. Your point about the stocks performance after the event still holds though. I agree that the big financials will survive this. Question is, In what form?
Glad I didn’t buy C…
JoeyDVivre Wrote: ------------------------------------------------------- > Pretty soon I’m buying Bear (the whole thing). Good call Joey! That is a crazy scary psychic prediction!
Syd_RE Wrote: ------------------------------------------------------- > luke77 Wrote: > -------------------------------------------------- > ----- > However, I think that the market > > has already more than priced in the probability > of > > further dilution… > > Are you implying that if C was to announce an > infusion of capital (at a discount) from an SWF > today, the stock price would not be impacted? > > I would disagree. > > > > My thesis is that as bad as things are, the > > biggest, strongest players will come out of it > > stronger than ever. Bear will likely be gone in > a > > month - when things come back, this means one > less > > competitor for C, JPM, GS, etc. in the areas > that > > Bear was strong in. > > > > Finally, take a look at a chart of C or any of > the > > big banks from 97-00 (during the LTCM crisis). > C > > dropped like a stone but if you had bought after > a > > 50% decline you’d have tripled your money 2-3 > > years out. C is now about 2/3 off it’s high… > > I think the comparison should be to 1987-1992, > which was the fallout from a free-wheeling credit > environment followed by a housing led recession. > > Your point about the stocks performance after the > event still holds though. > > I agree that the big financials will survive this. > > Question is, In what form? Yeah, I think that if C announced an infusion by a SWF it wouldn’t impact the stock adversely at this point, unless the financing was on really, really bad terms. Like I said, I think it’s already reflected in the price. Yes, tonight’s action is scary, but I think it’s scary for the whole global system - not just financials. If we see major contagion from the BSC news and Lehman goes under, etc., and on, and on, I think we’ll see a global, severe recession/depression, and in that case all stocks will do very badly, not just financials. This was my first scenario above, and I still don’t think this is very likely. For anyone bearish on C, I’d love to see your scenario for C going under and there NOT being a severe depression. If C goes under, they all go under. And that’s why it won’t happen if the US gov can possibly do anything about it… I’m not sure what you mean by “In what form?” unless you’re talking about the smaller financials. C will not be split up unless it wants to be, and Vikram apparently does not want to, although this could change. As for Joey’s comment, I will be buying without a doubt this week if C drops below $17.50, unless tomorrow turns out to be Black Monday…
Given that the banks are off between 8-11% in the UK, you are highly likely to get a chance today. Mind you, old Baron Rothschild said “buy when there’s blood in the streets”. I think now is as close as you are likely to get to actual blood. Everyone’s afraid for their job. A major US bank has effectively gone bust. Buckle up.
I don’t think we’ve seen the real blood yet. Buckle up is right.
Just looking for a few straws to clutch at…