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Citi's Deal: The Good News And Bad

The Citi deal is what one trader called "good bank, bad bank lite"—i.e. they are ring-fencing $306 billion in assets, but not removing them from the balance sheet. What isn't clear is exactly how the government will value the assets.

The good news is that this should at least help Citi make loans; the bad news is it is very dilutive to existing shareholders, who now don't even have a dividend.

This is the THIRD TIME Citi has reduced its dividend. They were the third largest dividend payer at the start of the year, with a payout of $10.78 b, according to Standard and Poor's; they payout then was $2.16 a year. That was reduced in January to $1.28, then again in September to $0.64, now $0.04.

Citi isn't the only one: there have been 50 dividend cuts by S&P 500 companies this year, and it is hurting. The fourth quarter 2008 S&P 500 dividend payment is expected to decline 10 percent from the same period last year; the worst quarterly change since 1958.

Citi up 54 percent pre-open, but even the preferred shares are rallying. for example, the 6.5 percent preferred share (which was yielding 27 percent at the close on Friday!) is up 84 percent pre-open.

    • Citigroup's CEO, Management Should Go: Analyst

Elsewhere:

1) Financials are rallying, many up 6 to 9 percent, as well as commodities and commodity stocks.

2) British banks are also asking for more capital-raising, so Barclays is looking for more money form Middle East investors

3) Jaguar/Land Rover is asking the British government for a billion pounds.

4) Next up to the trough: home builders, who are pushing for a $250 billion stimulus package called "Fix Housing First." It includes a tax credit and a federal subsidy to help lower the mortgage rate.

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