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'Fast Money' Recap: Citigroup's Blunder

The trading panel criticized Citigroup for shortchanging the government and shareholders in the pricing of its offering.



) -- The markets drifted lower Wednesday after

Federal Reserve

officials left interest rates near zero.


Dow Jones Industrial Average

was down 10.88, or 0.10%, to 10,441.12, while the

S&P 500

added 1.25, or 0.11%, to 1,109.18. The


gained 5.86, or 0.27%, to 2,206.91.

Melissa Lee, the moderator of


's "Fast Money" TV show, started the discussion rolling with a report that


(C) - Get Report

had priced its offering 10 cents below the government's conversion price. The network later said Citigroup confirmed the report.

For a breakout of some stocks from a recent "Fast Money" TV show,check out Dan Fitzpatrick's "3 Stocks I Saw on TV."

3 Stocks I Saw onTV

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The pricing drew an immediate response from Guy Adami: "That's a disaster. It's not good." He said the stock has dropped 36% since it reached $5.43 in the middle of August. He said the offering price of $3.15 is "not good."

He said Citigroup hasn't much left after getting strong-armed to get rid of its energy trading group.

Tim Seymour said Citigroup is "ripping the government off" with this move. "They're screwing everybody just so they can get out and be free again."

Pete Najarian said there was a big rush to get the offering done by the end of the year. He noted there was huge activity in the options and stock leading up to the pricing.

He said investors were expecting a discount but it happened before the close of trading. He said the floor chatter was that there were "soft" expectations for the offering and "indeed it was soft, all the way down to $3.15."

Joe Terranova said investors have to ask themselves what model Citigroup will adopt going forward. He said it has a "good overseas presence" but will need something more to compete with the likes of

Bank of America

(BAC) - Get Report


Wells Fargo

(WFC) - Get Report


Gary Kaminsky, former managing director of Neuberger Berman, said Citigroup had priced at $3.15 to create short-term demand. He said he was told that the offering was oversubscribed by 17 times at that price.

He said the next step for Citigroup will be to put in a 1-to-10 reverse split, which he added the board has already authorized and has until June to put it through. He called the split "cosmetic," with the aim of dressing up the earnings power to make it look stronger.

Seymour said the bankers in the offering didn't do their job in pricing the demand effectively.

Adami said he was going to stay away from Citigroup's offering. He said he would rather own Bank of America at its secondary price or Wells Fargo.

Seymour said the backlash over the offering underscores the point that financials "are not going have the same earnings environment going forward" and that the "regulatory environment on the Hill is getting frothier."

Terranova said 2010 is all going to be about normalized earnings and who's going to get there sooner. He thinks Bank of America has the best chance, while Citigroup at best is a "lottery ticket."

Seymour said investors who had bought Citigroup at $4 a week ago must be seething at the prospect of a 25% drop in the stock.

Terranova said hedge fund managers may step in and buy the stock at a cheap price and hold it until it reaches $10 over the long term.

Richard Bove, an analyst with Rockdale Securities, called the Citigroup offering a terrible deal for shareholders. He said Citigroup should never had done the offering and that the only winners from the deal is management, who will get higher salaries.

He said the deal is bad because the offer dilutes Citigroup's earnings per share and book value. Moreover he said its capital ratios will go down. Instead of focusing on its business, Citigroup concentrated on its financial structure. He said he does not want to own a stock of a company whose interests are not aligned with those of shareholders.

TheStreet Recommends

Lee moved on to the second big story of the day: the Fed's decision to keep interest rates low for a protracted period. Seymour said the move allows investors to remain in trades that are working such as oil, copper and the commodities.

Terranova said the next big move for the Fed will come on March 16 after it has digested three unemployment reports to see whether there has been any improvement in the labor markets. He said it is important for investors to focus not on the Fed trade but on the earnings season that begins on Jan. 11.

Adami said there's still trading to be done until the end of the year. He said investors have a good opportunity to pick up

Jefferies Group

(JEF) - Get Report


Rockwell Collins



Najarian said the coal and steel names remain strong, while Terranova liked the potential for earnings expansion for material and resource names in 2010.

Lee brought in Dennis Gartman to comment on the Fed's decision. He said nothing is going to happen in terms of Fed policy until March or summer. As a result, he expects stocks will go higher. He said he may buy dollars as a hedge.

Lee brought in Tavis McCourt, an analyst with Morgan Keegan, to comment on

Research In Motion


, which reports its earnings Thursday. He has an outperform rating on the stock, saying it' better be long RIM than short.

McCourt acknowledged the concerns about margin contraction but he said RIM has a good chance to do well in the emerging markets. Moreover, he said the company is making a slow, methodical transition to the mainstream as it moves from its enterprise business to consumers.

Lee invited Heather Bellini, a software analyst for ISI Group, to comment on


(ORCL) - Get Report

, which reports earnings Thursday. She has put a $26 price target on the stock and believes the stock, which closed at $23.12, can move higher if the company raises its guidance.

In the final trades, Seymour liked

Barrick Gold


. Adami liked

Trina Solar


. Terranova liked


(V) - Get Report

. And Najarian liked

Teck Resources



-- Written by David Tong in San Francisco

To watch replays of Cramer's video segments, visit the Mad Money page onCNBC


"Check out

"'Fast Money'Portfolios of the Week" on Stockpickr every Thursday.

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