Shares of Citigroup (NYSE:C) dropped below $4 last week before rebounding to $6, a breathtaking slide from its year-high price of more than $35 a share, roughly a 90% decline, and an even steeper falloff from the $50+ share price it sold for in 2007. This is a massive chopping down of the once-mighty financial company's market cap from $275 billion to $25-$35 billion. With government action on the horizon, it may be tempting to buy Citi at these prices as a potential value play, but there is good reason to hold off.

What Happened And Why
Citigroup, which had losses of $20 billion in the last year (-$4.23 per share) due mostly to write downs of subprime and other risky loans the amount of which has now totaled $40 billion, has been having its earnings estimates dropped recently. An analyst from Deutsche Bank had previously looked for 2009 earnings at $1.50 per share, but is now looking at a predicted loss of 30 cents per share. Four quarters of consecutive losses along with the general stock market meltdown and continuing high anxiety have combined to send the stock price spiraling down into the low-single digits. (Looking for a good read? Then check out Analyst Recommendations: Do Sell Ratings Exist?)

Bellwether No Longer
Citigroup is neither the first financial in trouble nor the most decimated, but these are signs of extreme caution for investors. Citi, with its once-huge market cap and its far-reaching businesses, was seen as a stalwart of the big national banks, its reach extending globally. Now, however, with its shriveled value and its market cap dwindling, it doesn't have anywhere near the same heft or size as Bank of America (NYSE:BAC) with its $66 billion market cap or JPMorgan Chase (NYSE:JPM) with its market cap of $107 billion market cap. Now with Citi's cloudy earnings picture going forward, it can hardly be considered a bellwether any longer.

Investment, Infusion and a Plan
Despite an investment from Saudi investor Prince Alwaleed bin Talal Alsaud via a purchase of convertible preferred securities as well as the promise of an additional investment, along with the Citi's $25 billion share of the $700 billion TARP funds which Citi has already received, Citigroup has struggled throughout the last year.

Finally, CEO Vikram Pandit recently announced massive layoffs and cutbacks for the company, yet also warned of continuing credit losses, particularly in the credit card area. Added to this has been the recent pledge by the government to step in and provide additional help. Whether this new strategy is enough to get the company turned around toward profitability in the near future is highly debatable, as it may be too little, too late given both the state of the company and the state of the economy.

What to Do About Citi
Citi's stock price continues to gyrate, and has fallen much more than the market in general. The investment community is showing no consensus on a possible turnaround to profitability for Citigroup even with massive government assistance, and given the economic uncertainty, stepping in for a low-priced buy on Citi as a value play looks like a mistake right now.

If you must consider Citigroup, either consider it as a trade/speculation and use trading disciplines, or else monitor it for signs of recovery in its fundamentals before you invest. Investors should at least wait until there is a clear picture of its direction, if not a resolution of its problems, and let the turmoil swirling around it abate. Otherwise, understand the stock price has fallen to its current levels for good reason.



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Tickers in this Article: C, BAC, JPM

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