http://www.blogvesting.com/2008/11/30/c-a-stab-at-valuation/ Articles on value investing Sat, 28 Mar 2009 00:11:29 +0000 http://wordpress.org/?v=2.9.1 hourly 1 http://www.blogvesting.com/2008/11/30/c-a-stab-at-valuation/comment-page-1/#comment-250 C : Mea culpa | Blogvesting Fri, 16 Jan 2009 13:23:28 +0000 http://blogvesting.com/?p=185#comment-250 [...] Previously, I believed that while Citi’s intrinsic value is unclear because it may have to incur further writedowns (most worrisome is its $1.2 trillion off balance sheet liabilities), as long as the government holds to its template of rescuing banks with reasonably priced loans and obtaining stock warrants in return (as has just happened with BoA), Citi will survive in reasonably good shape. Citi had an earnings power of $10 billion annually from its assets, and while a large part of that cash flow will go to servicing government loans in the future, a very low share price of $5 should more than compensate for this. Several aspects of this thesis have since gone awry, or is threatening to go awry. Pandit has begun selling off key assets of Citibank, even the crown jewel of Smith Barney. The government loan is supposed to prevent exactly such a fire sale, which is very disadvantageous to Citi, and makes future earnings even more difficult to estimate. Worse still, the government itself appears to be reconsidering the way it is rescuing banks. Congress have been agitating to put additional conditions onto the loans it provides to banks, and this threatens to undo the rescue template in the future. [...] [...] Previously, I believed that while Citi’s intrinsic value is unclear because it may have to incur further writedowns (most worrisome is its $1.2 trillion off balance sheet liabilities), as long as the government holds to its template of rescuing banks with reasonably priced loans and obtaining stock warrants in return (as has just happened with BoA), Citi will survive in reasonably good shape. Citi had an earnings power of $10 billion annually from its assets, and while a large part of that cash flow will go to servicing government loans in the future, a very low share price of $5 should more than compensate for this. Several aspects of this thesis have since gone awry, or is threatening to go awry. Pandit has begun selling off key assets of Citibank, even the crown jewel of Smith Barney. The government loan is supposed to prevent exactly such a fire sale, which is very disadvantageous to Citi, and makes future earnings even more difficult to estimate. Worse still, the government itself appears to be reconsidering the way it is rescuing banks. Congress have been agitating to put additional conditions onto the loans it provides to banks, and this threatens to undo the rescue template in the future. [...]

]]> http://www.blogvesting.com/2008/11/30/c-a-stab-at-valuation/comment-page-1/#comment-251 Recommended Reading - Dec 4,2008 | Old School Value Fri, 05 Dec 2008 09:02:34 +0000 http://blogvesting.com/?p=185#comment-251 [...] C: A Stab at Valuation presented by Blogvesting [...] [...] C: A Stab at Valuation presented by Blogvesting [...]

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