In a sudden and late gamble, smart money began gobbling up Citigroup stock late yesterday on hunches that new CEO Vikram Pandit may pull a rescue rabbit out of Citi’s tattered hat today.
Shares surged more than 2 percent on more than twice the usual volume as bad news swirled all over the bank – from a bloodbath layoff of up to 24,000 to a startling new writedown of $24 billion in bad investments.
Citi reports earnings today.
Talk of slashing or eliminating the bank’s handsome dividend also had raised concerns among Middle Eastern investors who’ve been bailing out Citigroup, including Saudi Prince Al Waleed bin Talal, who collected about $427 million a year on his nearly 4 percent stake.
“It wouldn’t surprise me to see a nice pop in the stock, especially if the writedown and news isn’t as bad as the purported $24 billion,” said analyst Peter Cohan of Peter A. Cohan & Associates.
CNBC reported that Citi would take a new $24 billion writedown, and also fire up to 24,000.
The Wall Street Journal reported last night that Pandit will write down up to $20 billion in bad housing bets, and significantly slash its dividend, which yields 7.4 percent.
The Journal also said that Pandit had rounded up another $10 billion from investors, giving him added flexibility in dealing with Citi’s damaged ledger.
Reports by most analysts expect fourth-quarter writedowns to range between $9 billion and $11 billion, with some as high as $18 billion, following losses of $6 billion in the prior quarter.
Cohan said Pandit may also have convinced Arab investors to put in added billions to bulk-up the ledger and accept a lower dividend temporarily, with plans to hike it later.
“The Arab investors may not care that much about losing a dividend in the short term as long as it pays off later,” said Cohan.
He said Pandit, who turned 51 yesterday, appears to be “playing the expectation game.”
Meanwhile, bad news continued to dog other banking giants yesterday, with Merrill Lynch expected to take a record loss of $3.23 billion when it releases fourth-quarter results on Thursday.
Merrill shares jumped 2.3 percent in frenzied buying, adding $1.28 to $55.97, and are up nearly 12 percent it the past five sessions in anticipation of new CEO John Thain’s recovery moves.
Bank of America expects to post a 79 percent plunge in earnings to $1.08, its worse in a decade, analysts said.
It could face writedowns of as much as $10 billion in bad housing bets.
Sovereign Bancorp yesterday reported a $1.58 billion writedown over auto loan troubles and a bad acquisition of Brooklyn-based Independence Community Bank in 2006.