Trader Talk

Tonight's The Night For Citi

Two down, one big one to go: Citi will likely price its secondary tonight at $3.30-$3.35.

Now that Wells Fargo and Bank of America have priced their secondaries (Wells Fargo sold a bit more than expected--$12.25 billion) Citi is the last large one to price. They are looking to raise $20.5 billion.

And that will likely happen today. In fact, the book will likely close about noon. The price? It has to be above $3.25 because that's where the government got in. It certainly will be at some discount to the closing price of $3.56 yesterday. Talk is centered around $3.30-$3.35.

Don't be distracted by reports that the Abu Dhabi Investment Authority has filed an arbitration case against the bank (the claim accuses Citi of misrepresentation over the sovereign wealth fund's $7.5 billion investment as the fund seeks $4 billion in damages).

It's a sideshow to the secondary offering. The secondary will get done.


1) U.S. stock futures up over night and are little changed this morning, as CPI and Housing Starts were in line with expectations.

European stocks are higher as the November jobs report in the UK was better than expected. Greece sold more debt, and Greek bonds traded up.

2) European banks are up; there is talk that plans to introduce higher capital requirements might be delayed.

3) Honeywell is down 2 percent despite reaffirming 2009 guidance. Earnings for this year are still seen at $2.85, a penny above consensus, amid revenues inline with expectations of $31 billion. CEO David Cote notes "improved order trends" due to "signs of improvement in the global economy and stabilization in a number of our end markets" heading into the new year.

As a result, the diversified industrial firm's 2010 guidance of $3.00-$3.20 is ahead of current Street expectations of $2.50 on stronger sales.

Why trade down? Stock is at a 52-week high.

4) Talk about a risky prospect: it's been a tough couple weeks for IPOs, but Cobalt International Energy, an oil exploration and production firm focused solely on deepwater drilling in the Gulf of Mexico and off West Africa, priced its 63 million share IPO at $13.50, raising $851 million in total.

That is well below the price talk of $15-$17.

But that's not what's interesting. The prospectus has a 15-page "Risk Factors" section that opens with the statement: "We have no proved reserves and areas that we decide to drill may not yield oil in commercial quantities or quality, or at all."

5) Fed today: unlikely the Fed will dump a curveball at the end of the year; there is near complete consensus that the Fed will again say they will keep rates "exceptionally low" and will keep them there for "an extended period."

6) The Mortgage Bankers Association reported slightly higher mortgage applications in the past week despite a small 0.04 percentage point increase in the 30-year fixed rates (currently at 4.92 percent). Refinancing applications moved up 0.9 percent, outpacing the 0.1 percent decline in mortgage applications for new home purchases. Not great, considering we are sitting on the lowest mortgage rates since the 1940s! 



Questions?  Comments?