Parsing the Scuttlebutt on Citi, B of A

By Mazzucca, Tim | American Banker, December 12, 2006 | Go to article overview

Parsing the Scuttlebutt on Citi, B of A


Mazzucca, Tim, American Banker


Rumors surrounding Citigroup Inc. and Bank of America Corp. have yanked their stock prices in opposite directions in recent weeks, causing a gap in market capitalization that had closed between them in November to reopen by a fairly wide margin.

With so much water having sluiced through the two companies' rumor mills, it's worth pausing to appraise the quality of the speculation and sort out the particulars -- what exactly is the Street saying and what is likely to happen when the yearend dust settles.

To be sure, it hasn't been all rumor. Predictions of management changes at Citi proved to be at least partly prescient when the company announced late Monday that it had named Robert Druskin to the post of chief operating office, filling a C-suite spot that had been vacant since the September, 2005 departure of Robert Willumstad.

Beyond that news, the $1.7 trillion-asset Citi and the $1.45 trillion-asset B of A have resisted discussing the content of various market rumors but the chief executives of both companies will get a chance to set the record straight this week. B of A's Kenneth D. Lewis is scheduled to speak at a Goldman Sachs Group Inc. conference Wednesday, and Citi's Charles Prince is scheduled to speak at his company's annual investor day Thursday.

Here are the main rumors, and some Wall Streeters' opinions on their link to reality.

Citi is on the verge of a breakup, with the idea that its parts would be worth more than its whole.

Most analysts do not buy this; it just does not synch with moves by the company this year to integrate different business lines.

"I think there's very little chance of any sort of breakup of Citi, or even a meaningful divestiture, so I think those rumors are overdone," said Howard K. Mason of AllianceBernstein LP's Sanford C. Bernstein & Co. LLC.

"What's going on there, I think, is people have done a sum-of-parts analysis and try to make it appear a less-than-academic exercise, by saying, 'If you did break up Citi, this is what you get, ergo we're going to break it up,' " Mr. Mason said. However, "commentators, in general, don't get a vote."

But Mr. Prince and Citi's board members do, and they have repeatedly denied any plans to dismantle the company.

"If you've got one pencil it's pretty easy to break, but if you've got 10 pencils stacked together it's impossible to break," said Craig Woker, an analyst with Morningstar Inc.

A counter rumor is Citi is buying Egg PLC, the Internet banking unit of Prudential PLC in London.

That would not be surprising, given the performance of Citibank Direct, the online account introduced in March. The account has collected $9 billion of deposits through Nov. 17 -- about two-thirds of which is new money for the company. And in an interview with American Banker in April, Mr. Prince said that Citi would look for ways to broaden its Internet capabilities through acquisitions.

But most analysts said they do not know what Citi is up to. Still, if Citi bid, Prudential apparently rejected the offer. (See story on page 11.)

Fine. So Citi stays intact, but Mr. Prince's days are numbered.

Most analysts are dubious about that rumor. Yes, everyone knows Citi investors are itchy, concerned that the company continues to spend more than it makes. But most analysts see Citi's board remaining both committed to the current spend-to-grow strategy and the company's top executives.

"Chuck Prince is the right person to run Citigroup," Richard X. …

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