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Sunday, April 13, 2008
Citigroup's market value drops below Apple's amid credit crisis
At the end of 2006, Citigroup Inc. was the fourth-largest company in the Standard & Poor's 500 Index, with a market value of $274 billion, almost four times that of Apple Inc. Now investors say the maker of iPods is worth $7.7 billion more than the biggest financial services provider.
Citigroup, reeling from the collapse of the subprime mortgage market, has lost 13 percent in value since reporting the biggest quarterly loss in its 196-year history in January. That followed a 47 percent drop last year. Even after a 26 percent decline in its own shares this year, Apple has a market value of $129.3 billion to Citigroup's $121.6 billion.
The shrinking of Citigroup underscores the devastation that has rocked the financial industry, highlighted by the Federal Reserve-managed takeover of Bear Stearns & Co. last month. Apple, on the verge of bankruptcy 10 years ago, has emerged as a technology star under Chief Executive Officer Steve Jobs. Its shares more than doubled last year.
``The market looks at what Steve Jobs has done and what he's likely to do,'' said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York.
``The market is valuing that far more than the financial assets of Citigroup.''
Holland sold his Citigroup shares a year and a half ago because he felt the ``prospects were pretty lousy'' and instead bought JPMorgan Chase & Co. shares. He also holds Apple and Google Inc., owner of the most popular Internet search engine.
``While we don't comment on our stock price, Citi remains focused on serving customers and implementing the priorities Vikram Pandit has developed, including better managing the firm's capital resources and risk management for improved profitability, stability and future growth,'' spokesman Michael Hanretta said. Apple declined to comment, spokesman Steve Dowling said.
New York-based Citigroup, whose market value dipped below $100 billion on March 17 for the first time since 1998, now ranks 19th globally by that measure. Among the other companies that have overtaken it in the last quarter are International Business Machines Corp., Coca-Cola Co. and JPMorgan.
Citigroup fell 35 cents to $23.36 yesterday in New York Stock Exchange composite trading. Apple fell $7.41 to $147.14 on the Nasdaq Stock Market.
Of 29 analysts tracked by Bloomberg, 26 recommend investors buy Apple shares, two suggest holding and one says sell. Seven analysts recommend investors buy Citigroup's shares, five say hold and six suggest selling.
Citigroup, the biggest bank by assets since the merger of Citicorp and Travelers Group Inc. in 1998, took $24 billion in subprime write-downs and reduced its dividend 41 percent in January, the first cut since Citigroup was formed.
CEO Charles O. ``Chuck'' Prince stepped down in November and was replaced by Vikram Pandit, who has eliminated about 6,000 jobs and plans more cuts. The bank may be poised to dispose of more than $200 billion of loans and securities to shore up its capital, a person with knowledge of the plans said last month.
``Citigroup got itself into a really big mess,'' said Richard Sylla, a financial historian and professor of economics at New York University. ``Apple is an innovative company, having come up with iPods and iPhones, and they seem to have a lot of promise for the future.''
The slump in market capitalization puts Citigroup behind technology companies that themselves slid this year, including Google and Cisco Systems Inc., according to data compiled by Bloomberg. Bank of America Corp. passed Citigroup last year. Bank of America now ranks ninth and JPMorgan is 11th.
Citigroup also ranks below Wal-Mart Stores Inc., Procter & Gamble Co., Johnson & Johnson and Pfizer Inc. -- so it trails the world's largest retailer, the top U.S. consumer-goods producer, the largest health-products maker and the biggest drugmaker even as slowing consumer spending weighs on the U.S. economy.
Apple's Jobs relied on iPod music players, the Web-surfing iPhone handset and Macintosh computers to drive profit to more than $3 billion last year for the first time in the Cupertino, California-based company's 32-year history. Sales may rise 31 percent to almost $31.5 billion this year, according to the average of 23 estimates in a Bloomberg survey.
Citigroup had a record loss of $9.83 billion in the fourth quarter and may post another loss when it reports first-quarter financial results next week, said Ed Maran, who helps manage about $10 billion at Thornburg Investment Management in Santa Fe, New Mexico.
Citigroup shares may bounce back, Maran said. At its current valuation, Citigroup is ``extremely attractive'' he said, because the company seems poised to reap the benefits of efforts in emerging market lending, wealth management, brokerage and even consumer lending in the U.S., which he says may have better long-term prospects than it seems today.
``The market is completely ignoring the earnings power of Citigroup and is completely focused on the balance sheet damage they have incurred,'' said William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, which owns Citigroup. He says this is a buying opportunity. ``This franchise has tremendous value, particularly from a global perspective.''
Citigroup's prospects in international banking convinced historian Sylla to buy the shares a few months ago. He said he may add to his holdings if the shares decline further.
``Once they get some infusions of capital, then life will go on again and Citigroup will come back,'' Sylla said. In the meantime, ``there's an opportunity for bottom feeding.''