Friday, August 28, 2009

AIG, Citi, ramp, Fannie and Freddie do the hustle, could Etrade be far behind

What's going on here. In August the stock of AIG is up 220%, Citicorp is up 80%, and Fannie Mae and Freddie Mac are both up approximately 100% each. Some analysts and market technicians say that it is all a result of AIG's reverse split, a move that squeezed short sellers by reducing the number of available marginable shares. The thought goes that it worked for AIG, so why not for these other scamps.

I have no idea about that thought. Well actually it does seems that could be a very credible analysis for a few days but to be sustained for a month may be unlikely. Couldn't it simply be real news, meaning leading fund managers and market movers taking a new perspective on some of these names that separates themselves from the crowd. Some of the most important people who are market movers assume the numbers, and make their real decisions on their intuitive feel for people, situations, and the market.

At AIG, for example, the stand out Lazarus of the month, a new CEO with both a big track record and major hutzpa has come in. He actually has the guts to say he talks to Hank Greenberg frequently and may bring him in as a consultant(Greenberg the former CEO that was ousted unfairly by the despicable Eliot Spitzer--comment has nothing to do with his prostitute incident). Greenberg was revered like few CEO's by Wall Street and in the extreme by his major shareholders. When he spoke at investment conferences every seat and every bit of good standing room would be taken and no question went unanswered. However much members of Congress want to blame him for the fall of AIG three years after he was forced out, investors as a whole don't buy it. AIG was one of the finest global corporations, brought to its knees by a small group of traders let run wild by Greenberg's clueless successor, and now new CEO Robert Benmosche has the good sense to talk to Greenberg and make it clear to the government that it's his call. There is still value there, and Benmosche is viewed as tough enough to find it. That's a real reason for the stock to be up.

Looking at Citicorp, there has been a refreshing lack of news out of the company lately, especially when compared to BofA. When Walter Wriston left in the late 1980's Citi was unassailably the most powerful and admired banking institution in the world. His successor John Reed whittled that stature away with intense petty bureaucracy, idiosyncratic mandates, and an inability to decide whether they were in investment banking or not from one year to the next(over ten years). Then came Sandy Weill, in to create the final roll up of his dynasty, but he fired his crown prince, Jamie Dimon, who did all of the heavy lifting and brought in syncophants in their mid-thirties. Todd Thomson, incompetent, inexperienced, amazingly arrogant, and well dressed, and Sallie Krawcheck, inexperienced, uninformed about commercial banking, and very well dressed, to replace his lost adopted son. These heir apparents were not capable so Weill left his mashed together conglomerate to Chuck Prince, his long time attorney who fell off a turnip truck into a derivatives patch. Citi as it was known only 15 years or so ago was destroyed. Much of the franchise, however, is still there. Emerging markets are showing signs of recovery, Asia and Europe have qualities that make them look like better candidates for a quick recovery than the USA. Citi's global consumer strengths are in those areas. It's time for Citi to bounce.

Fannie and Freddie, I have no idea whatsoever why they have moved so fast. Are the techs right about fears of a reverse split short squeeze. Is it just a few positive housing market signs of stabilization for companies that have been so beaten down, or is it individual investor enthusiasm for "cheap" stocks now that they have been watching AIG and C pop. No idea.

But what about Etrade. It was shunned by the Feds for any TARP money with no explanation publicly. Etrade's problems are largely derived from their FDIC insured bank(set up before the financial debacle) and the mortgage business of that bank. The reason for the denial by Treasury is without question the fact that Etrade was at the time 15% owned by a hedge fund, Citidal, and the administration would not risk being criticized by Congress for bailing out a hedge fund, no matter how legitimate the claim. So ETFC has been hacking it out on its own and surviving, still advertising, still working with its clients, but without any government liquidity injection during the most critical times. CEO Don Layton presciently addressed some of the worst problems of mortgage backed securities early on, taking losses that would have been much much larger had he procrastinated. If the dollar stock momentum catches on, this one definitely should jump. There's value here, for the company or for a buyer.

The words here are just that, and in a few weeks we may know whether what we have been witnessing is real or fantasy. Fantasy may be more fun but real is more rewarding.

(Disclosure--- the writer owns positions in AIG, C, and ETFC)


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