Arohan’s investing life

Can the gloom surrounding Citigroup be any darker?

The stock as of this writing is trading at a 9 year low. Goldman and Merrill Lynch have reduced their profit forecasts for 2008 for Citi and Merrill also believes that there is additional 18B in asset writedowns looming.

Then there is news that Dubai International Capital professing a belief that Citi needs another capital infusion to survive. This is after Abu Dhabi Investment Authority, Kuwait Investment Authority and Prince Alwaleed of Saudi Arabia bought or raised their stakes in Citigroup recently

And Vikram Pandit, the new Citi CEO, has not yet offered any clues to the plan he may be considering to right the Citi ship

One good news for any investor eyeing Citi as a potential investment is that the stock is now trading close to its proforma book value AFTER adjusting for another projected writedown in Q1

The decline in the stock price today brought Citi to my attention. Question as always, is whether the shares are cheap enough to purchase given that so much risk and uncertainity remains in the business? Citi stock today is trading at levels it has not traded since the LTCM debacle

I think the stock is now finally getting in the cheap territory. There is lot of risk and possibly no level of due diligence today can offer any insight into the current state of Citi business (apparently the company itself is trying to figure out what the current state is) and by the time the fog clears, the stock price would have moved (either up or down, I am sure of it! If I were playing options, I would have likely bought straddles). So buying the stock today is as close to a gamble that one can find.

I took the gamble and bought a small stake today. A lot of it is guts but Citi is also one financial company that has built a strong franchise over the years and is a globally recognized brand that any investor would love to own. I expect more capital infusion to come in to stabilize Citi and eventually turn it around.

I will let the time be the judge whether this was a good decision or a rotten one …

What do you think?