Citi taking approximately $45 billion of SIV assets onto its balance sheet today is generating a tidal wave of debate--much of it positive.
Mid-morning, Goldman Sachs upgraded Citi's debt (not the stock) to Outperform. Analyst Louise Pitt had this to say: "While we expect further losses from CDO and mortgage exposure in coming months, we also think the new CEO, Vikram Pandit, will take appropriate action to raise capital levels in 1Q 2008 either through additional third-party investments, dividend cuts or reduced risk-weighted assets--or a combination of factors."
She concludes by saying, "We believe that this is a positive development for sentiment in the markets, as it is likely to relieve the short-term pressure in the ABS market from the recent forced selling of assets."
Will Citi cut its dividend? The best points I have seen or heard today comes from Richard Bove at Punk Ziegel. He says no and notes that:
1) The bank has the money. The dividend may cost $10.5 billion but the company's free cash flow is believed to be $24 billion. Write downs are non-cash charges.
2) The Board of Directors has reaffirmed its belief in maintaining the dividend and Mr. Pandit has publicly confirmed that he will follow the Board's wish in this matter.
Importantly, Bove notes that "if Citigroup were to cut the dividend it would be taking funds away from its large Saudi Arabian investor to give to the holders of its new preferred sold to the Abu Dhabians--not likely."
Think about that. Citi up 1.5%.
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