For Bank Of America, $34Billion, what $34Billion?

Bank Of America (BAC) has been surging the last few days, up 56% the last 5 days, despite leaked information from the Federal Government Stress Test results. Even though the leaked details of BAC's capital needs seem ludicrously high, the number could have been a lot worse. Analysts have been on BAC's high horse, upgrading the stock, despite the need for $34Billion in capital! And here's why.

Despite the fact that $34Billion seems high, you've got to remember this is Wall Street thinking. The same Wall Street thinking that applauded a government move to secure defaults on over $300Billion in debt of Citigroup (C). Both banks have been surging lately as Investors jump back into an industry that was decimated by the credit crunch losses and prolonged recession.

For Bank Of America, and several other banks requiring more capital, the easiest thing to do would be to convert preferred shares into common equity. In BAC's case, doing so would add approximately $28Billion in capital, according to an analyst from Morgan Stanley. The comprehensive analyst report from Morgan's Betsy Graseck details other potential asset sales that would raise the remainder of the required capital. All in all, a situation for BAC, that looks much brighter compared to several weeks ago. It was very recently that Goldman Sachs (GS) made a splash by raising $5Billion in a stock offering, in order to use the money to repay the government's TARP funds.

Ken Lewis having his role of Chairman and CEO separated has given shareholders a new life, and recent gains certainly helped cement realistic rebound expectations. All this, despite the the financial sector still on what can be described as slightly thicker ice.

What Investors are still most weary of is government control of the financial sector, and despite the new Administrations repeated denials of Nationalization the potential of having the US government as the largest shareholder of several major banks will do nothing to quell the argument.

For now though, When the Stress Test results are made public investors will await word of what exactly Bank Of America will do to raise capital. Till then, what $34Billion?

Disclosure: Author owns C, GS

Citigroup unveils TARP plans, public gets some transparency

Leading the pack of news stories in the category of "Things that should have been public months ago" is today's gem about Citigroup (C) and their official plans for using government funds as part of the TARP bailout. Finally the company is unveiling how it has structured the use of funds it received as part of the Federal Government's Troubled Asset Relief Program - TARP.

In a report out today, Citi outlines how it earmarked for use the $45Billion it received in aid. Taxpayers, and in turn, the press have become more adamant in recent weeks about getting more transparency from the companies receiving TARP funds. President Barack Obama has released statements and given speeches recently on the same subject matter, and has in fact made transparency, regulation and executive pay limitations cornerstones of the next step of TARP and in the ongoing legislative stimulus package that is reportedly approaching $880Billion.

It is certainly high time for this kind of disclosure, with the latest stimulus package the United States government has essentially printed close to $2Trillion in economic aid, as taxpayers have been left scratching their heads. The public has demanded these programs become more transparent and informative, and with media and political pressure now being placed on the companies that receive funds, Citigroup appears the first to play ball.

With Citi stock hovering around the $3.50 range, the company really has no other choice but to do everything in its power to regain some Investor confidence. The selling of assets that it began late last year and early this year, including the brokerage deal with Morgan Stanley (MS), is only the beginning of the end of Citi as a stand-alone banking conglomerate. There are many legitimate fears in the marketplace that Citi's common shareholders will be left holding the bag as assets are sold to cover losses and Government aid comes in the form of more control.

For Citi Investors, the question to ask is whether, for the sake of the United States and the country's new mantra of Hope and Change, can one of the big American financial institutions afford to be seen as dissolving? Citigroup stock has seen support around the $3 range and has been caught in the bullish and bearish short-term trends of the market over the last 3 months. Initial sentiment to the report was positive boosting Citi by nearly 6% at the open to $3.80, however this waned quickly leaving Citi stock down by nearly 2% in early trade.

With this TARP report, Citi hopes to instill confidence to the mass media, that money being given isn't only used to cover bad investment bets. A bank of its size and stature is one of the few institutions that can get the media writing about new loans and new business instead of plummeting housing starts and production capacity. For the sake of a fragile American economy, that should be seen as a positive. According to the plan, Citi has approved $36.5Billion for loans and other related commitments to other businesses. Citi also made a big push into the secondary mortgage market, by taking $27.5Billion of its approved use dollars and buying up mortgages and other troubles mortgage related assets.

The important part here is that Citi is making a valiant effort to boost lending in America, and if similar reports come out from other institutions the public and the press will start to get what they were clamoring for, TARP transparency.

Disclosure: Author owns C

Citigroup brings out a bigger Ax

A shell of its former cash-loaded banking self, Citigroup (C) delivered another blow to its workforce today with the announcement of over 50,000 job cuts. The cuts are all part of an effort to reduce costs by 1/5th at the bank, which has seen its shareholders lose 67% of their value year-to-date.

CEO Vikram Pandit told reports of the plans to reduce company headcount to 300,000 in the "near-term". This latest round of cuts come on the heels of a worsening economic climate and an already slashed workforce by 23,000. The company which has struggled to capitalize itself amidst massive write-downs and losses paid only a $0.16/share dividend at the end of October. For comparison, the company paid $0.54/share in 2007 and $0.32/share earlier this year.

On the bright side for Citi, its situation is not unlike most other major banks over the course of the year. If that can even be considered a bright side. The turbulence in the credit markets and the sub-prime mortgage meltdown has left its fair share of well documented casulties. With Citi shares hovering under the $10 barrier Investors are sending a powerful message that something has to be done and soon or they will completely lose faith in the turn-around story Citigroup wants to champion in the years to come. If these drastic cuts are any indiciation, its that Citigroup is doing as much as it can to shore up its books, remain afloat, and capitalized enough to continue doing business well into the future.

Disclosure: Author owns C

Bank Of America & Wachovia see Profits Diminish but not Evaporate

The latest major US Financials to report earnings saw first hand the engulfing losses that have plagued many of their peers. Bank Of America (BAC) and Wachovia (WB) proved to be just as culpable in the US mortgage and credit mess as many of the other US banks and Investment Houses. Earnings for these two firms fell 95% and 98%, respectively.

Bank Of America, which till now, hadn't been hit by selling as hard as major competitor Citigroup (C), acknowledged a multitude of mortgage based losses and set liquidity provisions on its balance sheet to absorb even more. Now, while not as headline grabbing as the bigger losses of its peers, BAC managed to rack up over $5Billion in mortgage related write-downs and a further $5.5Billion in related trading losses. Even so, the company managed to eek out a small profit. $0.05/share vs. last year's mark of $1.16/share (Profits of $268Million vs. last year's $5.26Billion).

Revenue falling was also a concern as a 31% top line dive for any type of company can not be seen as healthy. Bank Of America also set aside over $3Billion for future related troubles (read: more losses due to bad loans), but it seems to have seen the worst for now. Analysts still expect somewhere over $4/share in earnings in FY2008, pegging a forward P/E for the battered bank at just under 9. In-line with what the markets expect to pay for the big Financials. BAC's cause was helped today by a 4% run-up (over 11% reversal from the open) in its stock.

If there's a less greedy bank option in the US, and one ripe for ownership for a longer haul reversal, it is probably BAC.

Another financial competitor, Wachovia, also posted a drastic decline in profit, but like BAC-and unlike others in the sector-it in fact still reported a profit! Profit numbers were minuscule at $51Million ($0.03/share) vs. a year ago result of $2.3Billion ($1.20/share). That's a spectacular 98% drop. However, it does show that Wachovia had some wits about itself to not completely jump in with both feet into a saturated sub-prime market. The revenue slide was not as great as most peers, coming in only 19% lower than a year ago at $6.3Billion.

Now, that's not to say all is well here, as in fact Wachovia increased its provisions for more losses many times over, 7 times in fact, to $1.5Billion, as well as recording a loss of $1.7Billion on loan related investments. That is a future provision of almost 1x current reported losses. This number is far more worrisome when compared to larger competitor BAC, which set provisions of only 0.3x current reported losses. Management however, reiterated that while poor results were in fact delivered today, the goals for the future and the expectations on those goals, remain very much in tact.

The Major Financials in this market-climate seem like a laundry list of the heaviest hit securities, and deservedly so, but some more than others, and a quick glance at profit declines and loan loss provisions shows which were in fact the greediest. While Citigroup tries to dig itself out of massive losses, others are simply dealing with profit cuts and slightly larger provisions. JPMorgan Chase (JPM) is an example of the latter, and along with BAC and WB seems to be the better candidate for a recovery into the later stages of this year and next.

Disclosure: Author is long BAC, WB

Citigroup Loses It's Hat in Latest Quarter

Citigroup (C) started a new trading day for Wall Street with what traders had feared for months now. Enormous credit losses. For the bank, it was the biggest loss in its 196 year history as a company. Almost $10Billion to be exact. Catastrophic? I think so.

With about $18Billion in write-downs to assets related to mortgage and credit, Citigroup was plagued by its "both-feet" in approach to the sub-prime market which has over the course of the last 6 months completely collapsed under its own weight; scratch that, greed. Citi lost $1.99/share compared to the expected $1.03/share but even some traders expected worse, so they asked questions about further losses. Citigroup has been by far hit the hardest of the major US banks and by and large it has deserved every licking. The icing on the cake in this quarter was the recently foreshadowed risk of dividend cuts. Citi in fact, cut its dividend by 40%. Four-Zero Percent!

Management tried its best to tap dance around the "unacceptable" and staggering loss metrics but the dividend cut was the stocks undoing today. The company prays that Investors hope that now the worst is surely over. It might just be, but it will take a long while for Citi to right the ship again. The dividend cut was the last straw for many Investors and Citi's stock fell over 7% in regular trading and stands down another 1% in extended hours.

Citi's problems plagued the entire market today as all major Indices were heavy to the negative side. The whispers of the credit crisis spilling over into spending, whispers of dividend cuts, whispers of massive losses, all turned into yells, and it seems no one was screaming louder than those saying "Sell Citigroup".

Can newly minted CEO Vikram Pandit give life and convince investors of new found confidence in the major Financial Institution that is Citigroup? That's the big question Investors are asking themselves and until the stock shows some life, they're probably looking for their own hats and the door.

Disclosure: Author owns C

Markets Start Post-Thanksgiving with Monday Afternoon Slide

The day started with promise after a Friday market session that had stocks broadly up. Some concerns over consumer spending were eased as reports came out estimating the number of shoppers in the US over the holiday weekend actually increased against last year. The markets were battered later after more credit concerns in the banking world came to light. Specifically from Citigroup (C).

The retail shopping data provided an early boost as a tracking data point (of approximately 50,000 stores) showed a 7% year over year increase in consumer spending. The fears that the credit crunch would curtail spending seemed to be forgotten for the time being. The positive vibe of the market was erased in the afternoon as more bad news poured out of the financial sector.

Citigroup announced some cost-cutting plans effective immediately, which led to speculation of job cuts and further write-downs. The major bank may have to include an over $8Billion write-down next quarter. This bad news trickled throughout most of the financial sector and Citigroup shares fell under $30. This company is surely in bad shape these days and a recovery effort will be a bitter pill to swallow for investors but may be a necessity before the $40s are seen again.

The major averages were all down around 2% Monday, with the Dow losing almost 240 points. The S&P benchmark with today's loss dropped into the negatives on the year and as it is the tracking average for most mutual funds Investors will surely be disappointed in their next statements.

I think there's some hope here for a recovery but the time-frames are shifting every month that's filled with continued bad news. We've heard it several times, that things will get worse before they get better, but investors can't shake off bad news with the fragile state the financial sector is in right now. It's got to be a holding pattern investment-wise until someone, somewhere shines a light on the sector.

Disclosure: Author owns C

Changes at the Top for Citigroup, CEO Prince steps down

Citigroup (C) Chairman and CEO Charles Prince has resigned. A move that shareholders were seemingly asking for, for more than a year, finally happened, and all it took was a disastrous housing and credit situations that nearly crippled the momentum of the United States economy.

Citigroup stock was recently beaten down heavily as the company was downgraded by analysts who were citing more write-downs due to mortgage loses and the fear that the company may need to cut its dividend in order to conserve its cash reserves. Citigroup had written down $6.5Billion worth of mortgage based investment losses. That's plenty of money to just vanish, but the kicker is that it's seemingly not gonna get better any time soon. The announcement of Prince stepping down was followed by further words of mortgage losses totalling up to $11Billion.

The company tried to reassure investors by claiming that it has no plans to cut its dividend but it'll be wait and see if that in fact is reality. Citi stock peaked earlier this summer and has fallen over 30% from that high. In the midst of these hefty losses and write-downs it was time for a change. The Chairman spot will be taken by Robert Rubin and the CEO title will be held in the interim by Sir Win Bischoff. What's next for the now struggling bank and its stock? Does anyone really know? A company having to make changes at the executive level is usually a company dealing with some kind of turmoil. However, a bank as big as Citigroup, with a reach across 100 countries has to be expected to recover in the coming years.

Holders have taken the hit now, but if the dividend in fact stays where it is, than the powerful yield of over 5% is very attractive at these stock levels. I thought Citigroup would find its floor around the $35 level but we'll have to see how traders react to Prince departure. Had this happened in the months before the credit crisis the response would have been overwhelmingly positive but with the heavy losses lingering on the minds of shareholders I expect he response to be more muted. Citigroup has a ways to go to get back near its highs, and while there are much better banks out there, with less exposure to credit problems, its a company that is so widely held that at levels under $40 it should be owned.

Disclosure: Author is long C

Aftermath of Fed Cut creates Market sell-off led by Financials, Citigroup Pressured

The Federal Reserve statements after their Halloween rate cut of 25 basis points, based on further economic instability due to housing issues, signaled that inflation is at the forefront of The Organization's list of concerns. This talk spooked investors Thursday and led to the Dow dropping by over 360 points. The Nasdaq and the S&P followed suit, both dropping over 2% and the Canadian TSX index fell 1.7%.

Worries over inflation signalled to Traders that the Federal Reserve will be much more cautious about further rate cuts; or as Traders read it, No December cut. This put a damper on the extended Fall rally that seemed to continue yesterday after the Fed's decision to in fact cut rates again.

The market was hurt today primarily by uncertainty in the Financial sector and Citigroup (C) was hit the hardest. Downgrades to Citigroup and Bank Of America (BAC) prompted selling in most financial securities. Looking across the Banking and Investment Banking board was not a pretty site at the close of trading as the entire sector was down by almost an average of 4%. Comments made about Citigroup focused on their ability to stabilize their balance sheet amongst the credit turmoil. This led to fears of a cut in the dividend and sellers were immediately very active. What's the point of owning a steady bank if it needs to cut its dividend just to maintain steady?

While the credit crisis poses serious issues and strains on the financial community of stocks, it is an atmosphere that seems to be closer to the bottom than not. With Citigroup falling below $40/share and probably on its way to $35, the buying support should establish itself in the months ahead. The dividend cut rumors may or may not be true but these banks will continue to operate and in the coming years this credit crisis bottom may be one of the best financial stock opportunities, to bottom feed, that has come around in quite some time.

Google (GOOG) broke a milestone yesterday as it crossed the $700/share mark, and today with all the selling still managed to hold onto a closing price of $703. But not before setting an intra-day all time high of $713. Techs are still in season right now for investors and its worthy to note that once again the Nasdaq was the smallest loser of the day amongst the major US indices.