Will a Wild Week for Citigroup End on a Happy Note?
Feb 22nd 2013 2:57PM
Updated Feb 22nd 2013 3:45PM
It's been a wild week for Citigroup , as the big bank was busy hogging headlines for the better part of the week. The stock churned quite a bit during that time, as news flowed at a quicker pace than investors could absorb. At the noon hour (EST), Citi had lost 3.23% from its opening on Tuesday, indicating that the market wasn't thrilled with many of the headlines. On the upside, though, the stock has gained about 0.75% so far today.
Indeed, it's been a tough week all around, as both the Dow and the S&P 500 are down so far from their Tuesday open, with the Dow slipping by about 0.26% and the S&P dropping by 0.67%.
Fellow banks were a mixed bag, as poor Bank of America slumped by a staggering 5.68%. Wells Fargo has been the big winner here, having risen 1.25% by mid-day.
Why the rollercoaster ride?
Both B of A and Wells also had some news this week, and I strongly suspect that these morsels were responsible for each bank's stock performance.
The news that Warren Buffett's Berkshire Hathaway added to its already hefty investment in Wells Fargo most certainly gave the big bank a boost, and the announcement regarding B of A's CEO pay package most likely had the opposite effect on that bank's shares. Despite the fact that many, including myself, firmly believe Brian Moynihan has earned his new salary level and then some, the drop in Bank of America's stock shows that not everyone is of the same mind.
Citi's news production was fast and furious
For Citi, starting off the week with the announcement that it had purchased big-box has-been Best Buy's credit card business from Capital One Financial didn't seem to have a deleterious effect, as shares climbed 1.11% during the day, on not-unusually high trading volume. Trading picked up a smidge on Wednesday, and the stock fell by 2.92% by the end of the day. It fell another 1% before the opening bell on Thursday, and things got ugly again. Trading picked up by 42%, leaving the stock battered by 1.04% by the time the market closed. Whew.
Chances are, though, that all of that action wasn't just due to investors digesting a possibly dubious credit card portfolio acquisition and reacting a day or two later. Citi had lots of stuff going on in addition to that piece of news, so it's anybody's guess as to which bit rankled investors the most, leading to the stock plunges on Wednesday and Thursday.
More excitement in Citi's executive ranks was apparent by Wednesday, when the bank announced the retirement of veteran acquisitions mogul Chad Leat. Though Leat is said to have left on good terms, his position of vice chair of global banking is not slated to be filled any time soon.
In the boardroom, Micheal O'Neill, Citi's chair, told the The Wall Street Journal that he is now of the opinion that his bank should not be broken up. This represents a sea change in this executive's position from an earlier time, when he thought not only Citi, but Bank of America too should be chopped into more manageable pieces.
While neither of these items is of paramount importance in and of itself, investors may have become uneasy if they interpreted O'Neill's comments as waning commitment to Citi's cost-cutting strategies.
Another pay package fiasco?
Citi had its own compensation package announcement as well, and this may have really rubbed investors the wrong way. After the stockholder rebellion regarding former CEO Vikram Pandit's pay last year, Citi's board announced yesterday that it will now more closely tie compensation to performance.
This is a good thing, but then came the body blow: New CEO Michael Corbat made $11.5 million in 2012, just about the same as JPMorgan Chase's Jamie Dimon. Of course, Mr. Dimon's pay was cut because of the London Whale mess, but, as The Wall Street Journal points out, his bank still produced a net income of more than $21 billion last year. For Citi, that number was more like $7.5 billion. Were investors annoyed despite the new compensation formula to be used going forward? Perhaps. We'll know more about that issue, no doubt, when Citi commences its annual meeting this spring.
For one week, this was an unusual amount of news for one company. As Foolish, long-term investors, we of course realize the need to keep the one-day jumps and even the weekly movements of a stock in perspective. Socks have good days and bad days, so it's important to realize that stepping back and taking a look at the big picture is paramount for good investing mojo.
Citigroup's stock looks tantalizingly cheap. Yet the bank's balance sheet is still in need of more repair, and there's a considerable amount of uncertainty after a shocking management shakeup. Should investors be treading carefully, or jumping on an opportunity to buy? To help figure out whether Citigroup deserves a spot on your watchlist, I invite you to read our premium research report on the bank today. We'll fill you in on both reasons to buy and reasons to sell Citigroup, and what areas that Citigroup investors need to watch going forward. Click here now for instant access to our best expert's take on Citigroup.
The article Will a Wild Week for Citigroup End on a Happy Note? originally appeared on Fool.com.Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Wells Fargo. The Motley Fool owns shares of Bank of America, Berkshire Hathaway, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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