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Fast Money

Gaming Citi's Secondary

In the after hours, the Fast Money traders were among the large number of investors gaming Citigroup's $20 billion secondary offering.

At 5pm, the desk was hearing that the offering had priced at $3.15, about 30 cents below Citi's close and 10 cents below the government convert price. And according to Fast Money sources it's 17 times oversubscribed.

CNBC's Bob Pisani tells the desk that the government will not be selling any of its stake in Citi on Thursday, contrary to earlier reports.

It's important to note that as of 5:30pm there was no official comment from Citi.

Word on the Street

Instant Insights with the Fast Money traders

$3.15 is 10 cents below the government convert price, cries Guy Adami. I understand it’s a lottery ticket but I just can’t own it. And I don’t think there’s a trade off the secondary.

I think the deal will make it worse for any bank still in the government’s clenches, adds Tim Seymour. I'd watch out for anyone that has government hands on them now because I think the mob on the Hill is angry.

And Citi is going to be re-balanced in the S&P, adds CNBC's Bob Pisani, at the close on Friday. If they sell $20 billion shares of common, about 10% of indexers tied to the S&P will have to buy stock at the close. That could provide short term support.

If you’re going to own this stock, you have to ask yourself what’s Citigroup's business model in years to come, muses Joe Terranova. What are they going to become? I can’t help but wonder if competition from Wells Fargo and other rivals is more than they can overcome.

Next, I’m looking for a 1-10 reverse split, adds Gary Kaminsky. I'm hearing the board has authorized it already and that they have until June 30th to put it through. It's something that's important to closet indexers though why that is, I can not explain. However, I can tell you it's cosmetic because it sounds a lot better to say your earnings power is $4 than .40 cents.

> For insights from Dick Bove of Rochdale turn the page

If you're looking to buy the secondary, analyst Dick Bove of Rochdale thinks you're playing it all wrong.

He tells the desk, the secondary "is a terrible deal for shareholders, Vikram Pandit should have never done this thing."

Not only does Bove feel the secondary provides "no positives for shareholders" but he interprets the move to mean the interests of Citi's management team are not aligned with those of shareholders. He thinks its more about getting away from government pay restrictions than anything else.

"I put a 'sell' on this stock when I couldn't convince them not to do this deal," reveals Bove. "Three weeks ago I met with the company and talked with them about not going forward with a deal of this nature. "My view was that this was a terrible error."

"I told them wait 2 years. Let the earnings come back to the company; let the business come back - then think about getting rid of the government obligations," he says.

But they didn't. And that's turned Bove from a Citi bull into one of the most bearish analysts out there.

"The net effect is I don't want to own this stock. I don't want to own a stock in a company that's not focussed on business issues and instead focussed on financial issues. I don't want to own this stock and I would not buy it."

* And in case you're looking for a trade elsewhere in the sector, Bove adds "the two stocks really screaming to be bought are Goldman Sachs and Morgan Stanley .

In the first quarter hedge funds come back into the market and money will come into long only funds from the pension contributions and you're going to have to start trading again aggressively. In the month of January I think we see a surge in trading activity to reflect that fact that these guys have to get back into the market.

And according to Bove the two stocks mentioned above should benefit.

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Trader disclosure: On December 16th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Seymour Owns (AA), (FXI), (INTC), (PBR); Najarian Owns (AAPL) Calls; Najarian Owns (DELL) Calls; Najarian Owns (FCX) Call Spread; Najarian Owns (GE) Calls; Najarian Owns (RIMM) Calls; Terranova Works For (VRTS)

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