Citigroup

Citi got downgraded today by Goldman Sachs from neutral to sell.  There are two things I find amazing about this.

First of all, how did Citi get into the predicament they’re in?  Between the SIVs, CDOs, MBSs, LBOs, and god only knows what acronyms I’m missing, it’s truly astounding to me that none of the guys & gals making millions thought to hedge any of their positions, increase reserves, limit their acquisitions, or generally practice anything closely resembling common sense! The word stupidity doesn’t even begin to describe the incompetence of Chuck Prince and his team.  Now, I’m no banker, or in Chuck’s case lawyer, but rather just a middle school teacher turned entrepreneur/investor.  Yet even I know that lending people $500k to buy a 1 bedroom winter vacation condo in Miami with nothing but their word that they can afford the interest only mortgage is not really a good idea.  Furthermore, I know that if I do loan them that money for their 2nd or maybe 3rd home (I once heard one of these real estate gurus on CNBC tell a middle class woman she should buy a few condos in different markets to “diversify” her portfolio!) I want to sell that loan off and have no recourse for it.  Maybe it requires a law degree or an MBA (neither of which I have) to understand how being on the hook for billions of $$ of securities backed by no doc loans, subprime arms, and the like is consistent with creating shareholder value, good risk management practice and the like.  Personally, I think a bit of common sense and responsibility would’ve gotten them much farther.  Seriously, you would really have to try, and try hard to create the mess Prince has left behind.  He thinks he was doing the “honorable”  thing to do by resigning.  How about a public letter of apology to all the shareholders, and retirees who depend on Citi’s, now in danger, dividend to make ends meet? How about donating the $40 million exit pkg? Nah, instead he does the honorable thing, resigns, and heads off to lunch at Tavern on the Green. It’s a wonderful life!

Second, as if the Citi debacle isn’t enough to make me think maybe I could run a small international bank, but Goldman comes along after Citi’s shares have dropped from over $50 to the low $30’s and tells us all we should sell Citi with a 12 month target of $33/share, essentially the price it’s been trading at for weeks.  With analysts like that who needs enemies?! Where was this analysis when the shares were at $50? Does this mean I too can be an analyst at one of the most revered firms in the world? Let me give it a shot.  MocoSpace founder & mobile Internet entrepreneur Justin Siegel has issued a neutral/hold rating on shares of Microsoft with a 12 month price target of $34 per share.  Wait, let me check….holy cow I’m good.  Microsoft closed at $33.96 today!

Here’s the good news for Citi, Goldman, and shareholders:

For shareholders – I think Citi is probably a pretty good buy if you are willing to hold it for at least 5 years.

For Citi – I know you probably wanted Thain, but for the right pkg I could be gotten.

For Goldman – Though I’m gainfully employed, a little wining and dining could get you a foot in the door because unlike Mark McGoldrick the first $70 million gets me and I’ll even sign a non compete!