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Two Ways: Government Making Bank on Citi

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Strengthen your portfolio in good times and bad.

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It appears the US government made a nice trade on Citigroup (C). Its $45 billion investment into the troubled bank returned 7.5% for US taxpayers, over three times as much money as the government invested in the S&P 500 index during the same period, according to Bloomberg.

The government first injected $25 billion in funds last October and added another $20 billion just a month later. It reaped about $1.6 billion on that investment due to dividends on preferred shares. The government also plans to convert about $25 billion of its preferred shares into common stock giving taxpayers about a 34% stake in the company. The conversion price is set at $3.25 per preferred share and would yield a profit of $1.77 billion given yesterday's closing price of $3.48.

Meanwhile, the S&P 500 index including dividends has returned 2.4% for the same time period beginning last October.

See related article on Bank of America (BAC), Professor James Kostohryz's BAC to Break $30?

From the Bull Pen: If bulls are looking for a trade in the banks, Professor Kostohryz's gives compelling reasons to buy Bank of America (BAC). But for short term traders, identify support areas near gapfill at $13 and the breakout near $12. Sell stops can be set below those levels.

From the Bear Cave: Bears can look elsewhere like Harley-Davidson (HOG). Its 20 day moving average appears to be overhead resistance and $16 support looks like it's ready to give way making the next target $14. A buy stop can be set above $17.35.

I hope you all had a great week and a happy Fat Friday. Have a good weekend!
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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