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Pisani: Citi Share Sale — 2 Key Issues

The government's announcement that it will be selling its Citigroup common share stake is no surprise, but hopefully it will sun a light on the potential windfall for taxpayers. The government owns 7.7 billion shares at $3.25. Right now, at roughly $4.25, it is sitting on a $7.7 billion profit ($1 profit per share x 7.7 billion shares), a tidy return.

Whether they can get that price over the next several months depends on a number of factors. Let’s look at two broad issues.

Financial regulatory reform. The Bank Index , up 2.3 percent last week and 22 percent year to date, is telling us that the Street thinks any reform will be manageable for banks.

Bank fundamentals. Banks have also been rising under the theory that we are in the early stages of a recovery, that banks still have a low level of earnings overall, and that most will return "normal" P/E levels in the next couple years.

"Normalized" earnings is a big assumption; there are many on the Street (Meredith Whitney among them ) who think the idea that banks will return to "normalized" earnings any time soon is simply wrong.

Still, there is some good news: for example, there's ample evidence that non-performing assets have peaked. We have seen that with credit card master trust data for all the companies.

The bad news:

1) short-term, the drop in equity prices in January and February likely hurt trading profits, and pressured M&A activity (though it now appears to be recovering), and

2) loan demand continues to be weak. This is a much bigger problem than 1); the Street will be looking very carefully for any sign that demand is picking up.

Big Bank Trading Volume:

Citigroup

Bank of America

General Electric*

Direxion Daily Financial Bear 3X Shares

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*General Electric is the parent company of CNBC.

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