Author Topic: C - Citibank  (Read 202222 times)

gordoffh

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C - Citibank
« on: March 24, 2011, 11:57:26 AM »
I had been starting to build a position in C with leaps and common. I was wondering what the feeling was out there re the reverse spllt. From what I have seen in the past stocks normally trended down after the consolidation. I believe a dividend was to be added. Comments..
« Last Edit: March 24, 2011, 12:20:40 PM by Parsad »


bmichaud

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Re: C - Citibank
« Reply #1 on: March 25, 2011, 09:50:26 AM »
What does the reverse split change?

ericd1

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Re: C - Citibank
« Reply #2 on: March 25, 2011, 10:50:10 AM »
Nothing...except if the price is high enough some institutions can buy it.

PlanMaestro

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Re: C - Citibank
« Reply #3 on: March 25, 2011, 12:25:17 PM »
I had been starting to build a position in C with leaps and common. I was wondering what the feeling was out there re the reverse spllt. From what I have seen in the past stocks normally trended down after the consolidation. I believe a dividend was to be added. Comments..

A potential effect is that it could lower the volatility of the stock and in consequence impact the short term value of the leaps. Now, if you think like myself that Citibank has a $30 billion earnings power these issues should not affect much your decision.

stahleyp

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Re: C - Citibank
« Reply #4 on: March 25, 2011, 12:38:58 PM »
Have you guys check out the warrants at all?
Paul

alertmeipp

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Re: C - Citibank
« Reply #5 on: March 25, 2011, 12:45:47 PM »
I will buy warrants after the RS. Save $ on commission.
IB charges me lots on those penny securities.

jb85

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Re: C - Citibank
« Reply #6 on: March 27, 2011, 01:17:31 PM »
So it seems they'll prob be earning $1 a share in a few years, but I guess what I always struggle with on options is its basically betting how quick it will return to IV, not IF it returns to IV.

I mean looking at the C call options, they look very cheap.  here is one scenario for the 2013 expire date options:

buy the $7.50 strike price for $.12.  If it goes to coservative EPS of $1/share, 10x multiple gives you $10 a share.  if it hit $10 before 2013 you make 20X your money.  Those odds seem good, I'm just not sure it'll get to $10 by then.  Anyone else have any thoughts on the options?

S2S

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Re: C - Citibank
« Reply #7 on: March 27, 2011, 01:29:05 PM »
When will they earn $1 a share (pre RS) exactly? My quick lookup shows that they earned 35 cents in 2010, with sell-side's consensus estimates for 2011 and 2012 at 43 cents and 54 cents respectively.

jb85

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Re: C - Citibank
« Reply #8 on: March 27, 2011, 07:09:18 PM »
My assumption is that the earnings right now are still depressed... ROE has been around 6% or so the past few quarters, but that is largely because they are still accounting for and working through troubled loans on their books.  If C can get to 12% ROE, which is not that unreasonable, their earnings per share would be in the $.75 to $.80 per share range.  that assumes no growth as well.  Using a 10x multiple that gets you 7.50 as a share price.  In my mind those are pretty conservative numbers.  Its just a question of how long it takes to get the losses off the book. 

Being less conservative, looking at 2001, C had a book value per share of around $15 and traded at low of around 33 (more like around 40 for most of the year).  Today book value is $5.  Using a very simplistic ratio, of 2x of book value, that means C would be in the $10 or $11 range.  (Could easily be more like $14 or $15).  I know that is really simplisticbut i think if you assume no more recessions for the next few years, then i think that is a good picture for C long term in a realitively stable environment.

Of course all of this doesn't mean earnings will be back up anytime before 2013.  I guess that is the gamble with the options.   the reason i'm looking is the payoff seems pretty good.  now just trying to get an rough estimate of what the odds are that earnings go up by 2013.  if anyone has any ideas on that, i'd be interested to hear

S2S

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Re: C - Citibank
« Reply #9 on: March 27, 2011, 08:43:29 PM »
I don't disagree with much of what you wrote, but those numbers are hardly conservative. C depends a lot less on leverage now than it did in 2005, and leverage will decline even further once they have to shore up capital to comply with Basel II and III... which means ROA will need to be at least as high as the heyday to get a 12ish % ROE. They might just be able to pull that off, bit keep in mind that their international business is already running on all cylinders... so a bet on C effectively means being very bullish on the US economy, credit and housing markets.

Getting to 2 times book (which I don't think any moneycenter banks deserve afterwhat we just went through) from .8 times book requires a similar leap of faith.