Citigroup Inc., after finally gaining its freedom from U.S. government support, may already compete for business.
According to Michael Holland, Chairman of money manager Holland & Co., which is a stockholder of Citigroup said, CEO Vikram Pandit and his assistants had to have sighed in relief. They can now deal like a business rather than a political entity which makes a big difference, he said.
Investors openly saluted the U.S. Treasury’s announcement of finally selling its remaining ownership in Citigroup late Monday, which last April amounted to a 27 percent interest stake. Citigroup shares reached a seven-month high of 3.8 percent at $4.62 at closing on Tuesday.
The final sale ended a long and difficult episode for Citigroup, which had been under government support for three times that cost of $45 billion during the financial crisis. The bank became profitable this year but had a hard time winning back its reputation while still being a government ward.
Another stockholder of Citigroup, Alan Villalon, a senior bank analyst at First American Funds in Minneapolis, said that it’s a great thing to finally get the burden around its neck. According to Citigroup, the government did not meddle with their business decisions. But while the government still owns the largest share, it still gives some doubt to some people, he said.
Those doubting include potential clients and employees, who were distanced for a long time because of Citigroup’s weak reputation, which was partly blamed by investors and analysts for the company’s loss of getting high-return and high-profile investment banking business this year.
It will be harder for them to portray themselves as credible market players, so long as they were technically and legally under the charge of the state, said Cornelius Hurkey, professor and director of Boston University’s Morin Center for Banking and Financial Law. He added that now, they’re restoring, to all appearances, but the company is still very fragile as it face large issues still roaming around.
But Citigroup has not entirely been released from U.S. government support because according to the Treasury on Monday, it would still hold warrants to buy Citigroup shares as part of the bailout. The U.S. government is still entitled for the $800 million in Citigroup Trust Preferred Securities from the Federal Deposit Insurance Corp under a debt guarantee program.
Citigroup is not yet done wiping up the consequences brought about by the financial crisis. CEO Pandit is still looking for ways to sell off some $400 billion of assets that are not related to the bank’s core businesses. And just like other U.S. major banks, Citigroup could still be forced to buy back mortgages repackaged into troubled bonds and could also be tapped if the crisis along eurozone worsens, said Hurley.
Citigroup shares rose 21 percent this year, which is considered at par with the industry. They trade at about 1.01 times tangible book value – lower than JPMorgan Chase & Co but slightly greater than Bank of America, Villalon estimated. Citigroup’s freedom from government ownership will help entice new talent, or new businesses, according to investors, adding that hiring will help Citigroup to expand abroad, especially in emerging markets like South Africa.
Villalon said that time and efforts will help rebuild everything. People now are looking up for Citi to generate profits. It will give comfort and will put all past issues behind once the company gets into some kind of stability.