I just watched Jim Cramer's Mad Money (I couldn't help but laugh at how long the WikiPedia entry for this TV show is, The Panelist should be so lucky). He thinks Citigroup (C- $54.15) is more valuable broken up than as one big unit. I could not disagree with him more.
Cramer says Citigroup is worth $63 a share if broken up. I think the financial supermarket is worth more, as conceived by Sandy Weil.
Cramer says Citigroup is trading at a discount and breaking it up would be the key to unlocking value.
The stock has rallied huge recently based on some potential shareholder activism to unlock value. Citigroup is in a tough sector at a p/e of 13 times trailing earnings (12 times 2007 earnings). Citi is trading at a premium to its group. The entire investment banking sector is trading at a big discount to the market look at Morgan Stanley (MS – $85.85 – p/e 10.8), Lehman (LEH – $74.97 – p/e 10.8), Goldman Sachs (GS – $229.71 – p/e 10.8), Merrill Lynch (MER – $91.93 – p/e 9.8) and Bank of America (BAC – $50.85 – 10.9).
Citibank has a great international consumer franchise. They have a much better reputation outside the U.S. than inside. I remember when I was in high school in Argentina, people would talk about having an account at Citibank as a status symbol. That is the mark of a fabulous brand. No other financial institution has that sort of global recognition. If you break up Citigroup, then that brand power will remain within only one of the entities.
So what should Citigroup be doing instead of breaking itself into pieces and wasting the brand? They should increase their exploitation of the biggest market where their brand recognition is going unused, namely the United States. Go ahead and buy some regional banks, or be smart and wait for small bank prices to fall and then start buying them up. I promise to be a patient shareholder. I also like that as a large financial organization, Citigroup has the opportunity to lead the corporate world on climate change and corporate responsibility. I will be voting my shares and supporting shareholder resolutions to push Citigroup towards behaving as an example of corporate citizenship.
I also don't think it's the financial sector that is trading at a discount, I think the rest of the market is trading at a premium. If there is a meltdown, I think the cheap valuations in the financial sector would provide a bit of a safety net.
Disclosures and Confessions:
Ownerships: I own Citigroup (C), Lehman (LEH) and Bank of America (BAC).
Relationships: I am a past managing director at Morgan Stanley (MS) and am vested in the executive compensation and pension plans. I am a past managing director at Lehman and vested in the executive compensation plans. I applied for jobs at five different departments at Citibank in 1990, I got two interviews and one offer. I ended up turning it down. I have discussed employment at Goldman Sachs on three separate occassions at Goldman Sachs over the years. I have never discussed employment with Bank of America. I did once discuss a summer job for 1989 with the Merrill Lynch Muni Bond Department in 1989. I ended up working in Tokyo for Meiji Life instead.
More from The Panelist on Citigroup