NEW YORK (
shareholders saw their holdings massively diluted by the company's just-completed stock offering, but now know the government won't start selling its 34% stake for at least three months. So how should investors play it?
For the ordinary retail investor, it may be hard to stomach the drama surrounding Citigroup.
Citigroups's common stock offering, which priced late Wednesday, raised $17 billion, but sold for far less than expected. The weak demand for the stock caused the federal government to back off its plan to sell some of its 7.7 billion-share stake alongside the offering, pledging to hold off selling any of the stock for 90 days.
Citigroup shares closed down 7% to $3.21, but the news did not seem to have a huge impact on Wall Street analysts. So far, of the 23 sell-side analysts that cover Citigroup's stock, according to
, none have downgraded the stock to a sell rating on Thursday. According to
, just six analysts currently have sell ratings on Citigroup, none issued Thursday.
Bernie McGinn, founder and CEO of McGinn Investment Management in Alexandria, Va., sees the recent events as an opportunity to increase his position.
"If you're a long-term investor, I don't think you bet the ranch on it, but it's an interesting speculation," McGinn says. "The government is not going to let Citigroup go under. I would use the weakness to add to the positions. ... If you give yourself a year timeframe it's going to be much higher than it is now."
L.A. Little, a senior contributor to
and technical trader, also sees an entry point into
in Thursday's weakness.
"For someone who has been waiting on better prices to buy back into financials, this pricing looks to work and this trader is a buyer at those prices," he writes in an article on Thursday.
Citigroup's sale of 5.4 billion common shares for $3.15 apiece generated net proceeds of $17 billion. Citigroup also sold 35 million of tangible equity units, priced at $100 each, generating proceeds of $3.5 billion ($2.8 billion of which was counted as equity).
The offering was the largest public equity offering in U.S capital markets history, according to Citigroup. Still, Citigroup's rush to come to an agreement with regulators over the repayment of bailout funds before the year was out may have been to its detriment.
Bank of America's
successful $19 billion offering earlier this month, had hoped to receive an equally warm welcoming from investors. But rival
also quickly announced and then completed a $12 billion offering this week, perhaps dampening investor appetites for Citigroup stock.
Citigroup priced the offering 20% below its stock price of $3.95 a share -- its closing stock price on Friday, the last full trading day before the announcement of the offering was made. It was also 10 cents less than what the government paid for the stock during the preferred to common stock conversion completed over the summer.
Treasury officials said Thursday that it plans to gradually sell the stake over the next six to 12 months. And investors know the government is going to sit tight for at least 90 days. But that doesn't make dabbling in Citigroup any easier for the faint of heart.
"What you see here is a pretty good example of the
trouble that's created when the government gets involved in private enterprise," McGinn says. "I think someone in the government probably thought if we start selling our shares then the markets will eat it up, but it had just the opposite effect. Now instead of selling x shares to get y amount of money, Citi has to sell 2x to get the same amount of money."
-- Written by Laurie Kulikowski in New York.