I would avoid Citigroup unless you are nimble and are interested in doing a very quick trade...IMO, they may have substantial legal liabilities that could hang over the stock like a storm cloud...
Citigroup Shares Fall on Wider Probe
Tuesday September 3, 11:51 am ET
NEW YORK (Reuters) - Citigroup Inc. (NYSE:C - News) shares fell more than 7 percent on Tuesday as investors worried about a widening probe into how the financial services giant allocated shares of initial public offerings.
Also on Tuesday, Prudential Securities downgraded Citigroup stock to "sell," a rare rating on Wall Street, on concerns about lower earnings and legal risk as lawmakers take a closer look at the company's corporate governance.
"In mid-September, Congress will likely hold more hearings into the practices of Citi and others with regard to Enron/WorldCom, which could place Citi in a negative light," analyst Mike Mayo said in a research note.
Congress is investigating Citigroup's role in the collapses of energy trader Enron Corp. (Other OTC:ENRNQ.PK - News) and telecom company WorldCom Inc. (Other OTC:WCOEQ.PK - News). But what spooked investors on Tuesday was New York State Attorney General Eliot Spitzer's ongoing probe into Wall Street research.
Spitzer has expanded his investigation to the role played by executives at Citigroup's Salomon Smith Barney securities arm regarding its allocation of hot initial public offering shares, said a source familiar with the matter, confirming a report in Tuesday's Wall Street Journal.
A spokeswoman for Spitzer's office declined to comment, and a Salomon spokeswoman was not available. The firm has said it is cooperating with authorities.
Citigroup shares were off $2.39, or 7.3 percent, at $30.36 in midday New York Stock Exchange trade.
WORLDCOM EXECUTIVES SNARED IPO SHARES
Top former and current executives at WorldCom received thousands of shares of hot IPOs and were able to sell them for big profits, according to records released on Friday by the U.S. House Financial Services committee. Former WorldCom Chief Executive Bernie Ebbers made $11.1 million from 21 IPOs.
Spitzer and the Congressional panel are investigating whether Salomon gave out the shares to entice WorldCom to send investment banking business its way, the Journal said. Spitzer is probing the roles of Salomon CEO Michael Carpenter; Eduardo Mestre, chairman of its investment banking group; and Kevin McCaffrey, head of its research department, the story said.
Spitzer is investigating whether analysts have been pressured by bankers to issue optimistic research reports so their firms could win lucrative underwriting and merger advisory deals.
He was already looking into a big AT&T Corp. (NYSE:T - News) banking deal that Salomon won in 1999 and is scrutinizing the role of Salomon's former star telecom analyst, Jack Grubman, who long flaunted his close relationships with executives in his sector.
One of Grubman's biggest favorites was WorldCom, and he was very close with Ebbers. But the stocks he touted are now dwindling near historical lows, and Grubman resigned under pressure last month. He has testified before Congress regarding his relationship with WorldCom and its executives.
Spitzer isn't Citigroup's only problem, as Mayo mentioned potential pitfalls in Brazil, where the company has $11 billion of loan exposure. Brazil is voting for a new president on Oct. 27, and Citigroup could face negative implications if the free-market candidate doesn't win, Mayo said.
He cut his earnings per share estimates to $2.85 from $2.90 for 2002 and to $3.30 from $3.50 for 2003. He also slashed his price target to $28 from $42. |
