Citigroup extends slide; Wachovia weaker, KeyCorp slumps; Virgin Media lower outright; Newmont adds

By Rebecca Melvin

New York, Nov. 21 - Citigroup Inc. remained in the cross-hairs of investor scopes Friday. The stocks and bonds of the firm extended a free fall amid a vacuum of news since a series of steps taken during the week aimed at restoring confidence in the New York bank holding company.

Citigroup convertible preferreds traded down in ultra-heavy volume and were seen near the end of the day at 12.5 versus a share price of about $3.70.

In the same way that all eyes were on Lehman Brothers Holdings Inc. the week or two before it declared bankruptcy Sept. 15, all eyes were on Citigroup this week, an East Coast-based sellside trader said.

Observers weren't thinking Citigroup's fate would be the same as that of Lehman's, but they believed something had to happen, probably involving government intervention, to stabilize Citigroup and the financial markets.

"Bear Stearns was a pimple compared to this; this is the whole world," a sellsider said about the significance of Citigroup to the financial markets.

Other banking names were also lower. Wachovia Corp.'s perpetual convertible preferreds were a bit weaker and were called down about 10 points on the week, a buysider said.

But the paper is still viewed more positively than other convertible preferred shares given that Wells Fargo & Co. is expected to close on its deal to take over the Charlotte, N.C.-based bank in another month.

KeyCorp perpetual convertible preferreds sank along with their underlying shares Friday after word that the Cleveland-based regional bank slashed its dividend.

The stock markets, which careened lower Wednesday and Thursday, regained their footing late Friday and rallied in the final hour, to leave the Dow Jones Industrial Average up 494 points, or 6.4%, to more than 8,000.

The stock rally coincided with news broken by NBC that president-elect Barack Obama is naming Federal Reserve Bank of New York's Timothy Geithner as his Treasury Secretary. And it seemed to go a long way toward removing some of the uncertainty plaguing the market and fostering some promise of continuity in U.S. policy given that Geithner and the current Treasury head, Henry Paulson, have worked closely together.

Convert sources were loathe to pin the rally totally on that, however: "I don't know what caused this rally, to be honest," an East Coast-based buysider said.

No doubt there were other factors at work, including double witching, or the expiration of stock and index options.

Among other names in trade were the convertible bonds of Ford Motor Co., which was part of the other "story of the week," namely what will happen to the U.S. auto industry given the current downturn in auto demand and low-functioning credit markets.

The Ford 4.25% convertibles due 2036 traded at 17 versus a share price of $1.30, according to a New York-based sellside desk analyst.

Virgin Media Inc. was also down almost 2 points outright, but Newmont Mining Corp. jumped on a gain in gold prices.

Citigroup extends losses

The Citigroup preferred shares lost another 23% of their value Friday after losing 25% on Thursday.

The Citigroup 6.5% convertible preferreds closed at 12.5 versus a share price of $3.70, compared to 16 against a common stock price of $5.45 on Thursday.

Shares of the bank holding company ended down 20% at $3.77 in volume of more than 1 billion shares traded.

A buysider said that more than 8 million of the preferred shares traded, compared to average daily volume of about 1 million.

Traders compared market-cap figures during the session and noted that Wells Fargo was now the biggest bank in America, pulling ahead of J.P. Morgan Chase Co., which has seen its shares slide more than 30% since their Monday close.

At one point in trade Friday, JPMorgan shares slid into the teens, a trader noted.

A solution for Citigroup, which has shrunk in terms of market cap to $20.5 billion from well over $200 billion a year ago, was considered mandatory for the markets' stabilization.

"Some smaller banks will have to close this weekend and their deposits go to Citigroup," one sellsider suggested, noting that several small banks were seen on the brink of closing, including Chevy Chase Bank in Maryland, Downey Savings Bank of California and BankUnited Financial Corp.

"This is triage," he said.

Citigroup was scheduled to hold a board meeting Friday to discuss whether to sell all or part of itself, according to a Wall Street Journal report.

On Thursday, Saudi prince Alwaleed Bin Talal Bin Abdulaziz Alsaud said he was raising his stake in Citigroup to 5% from less than 4%.

On Wednesday, Citigroup said it was taking over the remaining $17.4 billion of off-balance sheet structured investment vehicle assets, and issued a statement saying that the company has a "very strong capital and liquidity position."

On Monday, the company held a town hall meeting during which chief executive Vikram Pandit announced 53,000 layoffs on top of 22,000 cuts previously announced, and tried to reassure the troops that the universal bank model was the one that worked best for Citi.

Speculation on Thursday raised the possibility that Citigroup could report another quarterly loss in the fourth quarter and may have to seek more capital. There are concerns that much of 2009 could be lossmaking for Citigroup given the deteriorating economy and still-turbulent markets.

Wachovia weaker, KeyCorp slumps

The Wachovia 7.5% perpetual convertible preferred shares were seen ending the day at 565 versus a share price of $4.13, compared to 600 versus a share price of $4.10 on Thursday.

Shares of the bank actually edged a little higher.

Wachovia preferreds had been trading at 600, and people were trying to buy them because they were cheap compared to the Wells Fargo straight preferreds at about 900, a sellsider said.

That's a 37% return plus 12.5%," the sellsider said.

KeyCorp's 7.75% perpetual convertible preferreds ended at 49.5 versus a share price of $6.27, compared to 62.5 versus a share price of $6.91 on Thursday.

The bank slashed its quarterly dividend 67% to 6.25 cents, its second cut of the year. In June, KeyCorp lowered its dividend to 18.75 cents from 37.5 cents.

"We're also having people look at the Fifth Third convert, which has a lower premium of about 14%," the sellsider said.

Mentioned in this article:

Citigroup Inc. NYSE: C

Ford Motor Co. NYSE: F

KeyCorp NYSE: KEY

Newmont Mining NYSE: NEM

Virgin Media Inc. Nasdaq: VMED

Wachovia Corp. NYSE: WB

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