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Citigroup: Fool Me One More Time?


Bank seems to never get tired of calling the bottom.

To believe some in the press, this week's stress test carries comparable weight to President Franklin D. Roosevelt's bank holiday in 1933; that is, the test will signal the bottom of our current banking crisis.

With all due respect to the parties involved, as Mae West would say, "I may have been born yesterday, but I've been up all night." You can fool me once, maybe twice. But if I use Citigroup (C) as the sample, announcing the stress test as the bottom would be, by my count, the eighth time.

This morning, just for fun, I went back and looked at all of the capital-raising done by Citigroup over the past 18 months and the comments from management. And while a lot has changed in the economy over this period of time, unless the regulators announce hundreds of billions in new capital going into Citigroup and the other major banks in the system, it's very hard for me to see how Thursday night's announcement will be anything more than yet another insufficient, albeit needed, step in the process.

So at the risk of going down memory lane…

In November 2007, Citigroup raised $7.5 billion in mandatorily convertible preferred stock from the Abu Dhabi Investment Authority, and at the time, Win Bishoff, Citi's then acting CEO said:

"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business. It builds on a series of actions we have taken over the past several months to strengthen our capital base, which have included sales of certain non-strategic assets, the issuance of trust preferred securities, and the previously announced plan to use common stock to purchase 32% of Nikko Cordial in Japan." (Author's note: Last week Citigroup announced that it was selling 100% of Nikko Cordial.)

Then In January 2008, it raised $14.5 billion in additional convertible preferred stock, cut the dividend to $0.32, announced the sale of "non-core assets" and at the time, new CEO Vikram Pandit said:

"We are taking comprehensive action to position Citi for the future with the capital strength that will allow us to refocus on earnings and earnings growth. In an uncertain environment, these actions put us on our 'front foot,' focused on capturing opportunities that earn attractive returns for our shareholders."
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Position in JPM and SPY options.
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