Citigroup shares jump on bail-out

Shares in Citigroup have jumped by almost 60% as investors welcomed the US government's rescue plan for the bank.

The US Treasury is set to invest $20bn (£13.4bn) in return for preferred shares in the troubled banking giant.

The Treasury and the Federal Deposit Insurance Corp will also guarantee up to $306bn (£205bn) of risky loans and securities on Citigroup's books.

"Equity markets have responded positively to the Citigroup news," said Neil Mackinnon at ECU Group.

The new plan follows a $25bn injection of public funds in the bank last month.

Citigroup's market value fell to $20.5bn on Friday, compared with $270bn in 2006, as its shares plunged by more than 60% last week.

However they rallied by 58% on Monday.

The company has announced 52,000 job losses worldwide, on top of 23,000 job cuts previously announced. It employs around 12,000 people in the UK.

Citigroup has lost more than $20bn in the past year because of the global financial crisis, suffering four straight quarterly losses.

Citibank UK deposit holders are covered by the Financial Services Authority. The Financial Services Compensation Scheme guarantees up to £50,000 per Citibank account holder, should the bank go bust.

'Protecting taxpayers'
The action plan was announced after emergency talks over the weekend between the bank and the treasury department, the Federal Reserve and the Federal Deposit Insurance Corp.

Citigroup is one of the leading US banks and has operations in more than 100 countries.

Many analysts had calculated that the huge financial institution was too big to allow to fail.

"With these transactions, the US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy," the three agencies said in a statement.

"To stabilize the equity, we had to put behind us the issue of Citigroup's ability to withstand whatever would come," the bank's chief financial officer Gary Crittenden said.

The cash injection will come from the $700bn financial bail-out fund created last month.

Focus on details

Many analysts believe the plan to rescue Citigroup will help reduce uncertainty in the market.

"We expect the US bail-out of Citigroup as well as Obama's promise of a major stimulus plan - with key Democrats suggesting numbers between $500bn and $700bn, much bigger than expected - to allow stock markets to gain across the globe, " said Dariusz Kowalczyk at CFC Seymour in Hong Kong.

Markets are keenly awaiting for more details of the plan to be revealed.

"Clearly, this will stabilize the [banking] group near term," said Meredith Whitney at Oppenheimer & Co.

"We are still cautious on the potential future dilution from further prospective capital raises for the group as well as continued higher losses related to credit and asset deflation," he added.

"Management's future

Under the agreement, Citigroup does not have to replace chief executive Vikram Pandit and other top managers, but the government will be able to make decisions on their compensation.

"We appreciate the tremendous effort by the government to assure market stability," Mr Pandit, who took the top job at Citigroup in January, said in a statement.

He has come under fire for failing to turn around the bank.

"You're seeing an inept management team being rewarded by the US government," said William Smith at Smith Asset Management in New York.

The bank will not be able to pay out more than 1 cent per share quarterly dividend. The dividend now stands at 16 cent per share.

Seeking to stabilise the financial system, the US government has bailed out Bear Stearns, Fannie Mae, Freddie Mac and American International Group and injected hundreds of billions of dollars into financial institutions.

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US rescues ailing Citigroup bank

The US government has announced a rescue plan for troubled banking giant Citigroup after its shares plunged by more than 60% last week.

The US Treasury is set to invest $20bn (£13.4bn) in return for preferred shares in Citigroup.

The Treasury and the Federal Deposit Insurance Corp will also guarantee up to $306bn (£205bn) of risky loans and securities on Citigroup's books.

The plan follows a $25bn injection of public funds in the bank last month.

Citigroup's market value fell to $20.5bn on Friday, compared with $270bn in 2006.

Last week the company announced 52,000 job losses worldwide, on top of 23,000 job cuts previously announced. It employs around 12,000 people in the UK.

Citigroup has lost more than $20bn in the past year because of the global financial crisis, suffering four straight quarterly losses.

Citibank UK deposit holders are covered by the Financial Services Authority. The Financial Services Compensation Scheme guarantees up to £50,000 per Citibank account holder, should the bank go bust.

'Protecting taxpayers'
The action plan was announced after emergency talks over the weekend between the bank and the treasury department, the Federal Reserve and the Federal Deposit Insurance Corp.

Citigroup is one of the leading US banks and has operations in more than 100 countries.

Many analysts had calculated that the huge financial institution was too big to allow to fail.

"With these transactions, the US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy," the three agencies said in a statement.

"We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks," they added.

The cash injection will come from the $700bn financial bail-out fund created last month.

Focus on details

Many analysts believe the plan to rescue Citigroup will help reduce uncertainty in the market.

"We expect the US bail-out of Citigroup as well as Obama's promise of a major stimulus plan - with key Democrats suggesting numbers between $500bn and $700bn, much bigger than expected - to allow stock markets to gain across the globe, " said Dariusz Kowalczyk at CFC Seymour in Hong Kong.

Markets are keenly awaiting for more details of the plan to be revealed.

"Clearly, the market focus today will be on the release of a concrete rescue plan for the bank, details of which remain fluid; reports so far have noted that any infusion plan is provisional and subject to change," said Sue Trinh at RBC Capital Markets in Sydney.

"Does this mean support for other financial institutions will be this big? Does this mean there will be more problems around calculation of so-called toxic assets? It's too early to say," said Tony Morriss at ANZ Bank in Sydney.

Management's future
Under the agreement, Citigroup does not have to replace chief executive Vikram Pandit and other top managers, but the government will be able to make decisions on their compensation.

Mr Pandit, who took the top job at Citigroup in January, has come under fire for failing to turn around the bank.

"You're seeing an inept management team being rewarded by the US government," said William Smith at Smith Asset Management in New York.

The bank will not be able to pay out more than 1 cent per share quarterly dividend. The dividend now stands at 16 cent per share.

Seeking to stabilise the financial system, the US government has bailed out Bear Stearns, Fannie Mae, Freddie Mac and American International Group and injected hundreds of billions of dollars into financial institutions.

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citibank

The U.S. government and Citigroup are working feverishly to hammer out a rescue plan for the beleaguered bank. If all goes according to plan, there will likely be an announcement of some type of plan in a couple of hours.
The exact nature of plan remains unclear, but the government is leaning towards some sort of cash infusion into Citigroup

The plan will probably be a multi-layered one, which means the government could backstop losses on Citigroup's troubled assets as well. In exchange, Citi may issue preferred stock to the government

Sources with knowledge of the negotiations say "everything is on the table", meaning that even the government plan of buying the troubled assets could be revived.

he problem with buying the assets from Citi is political: People close to the deal know that other firms will line up and ask the government to purchase their troubled assets as well. Brokerage stocks got crushed when Treasury Secretary Hank Paulson reversed his plan on the TARP to direct capital infusions to the banks and away from buying troubled assets.

The Bottom line: This is very fluid and the situation may change again. But as of now, the government is getting cold feet on plan to buy troubled assets, which leaves direct capital infusion on the table.

Negotiating A Deal

The government is mulling the purchase of a substantial amount of assets from Citi, similar to a good bank, bad bank structure. The government would absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government.

While the Fed could buy more than $100 billion or more in the bad assets if the plan goes through, that doesn't mean it will pay Citi $100 billion, depending on the final valuation of those assets. According to people with knowledge of the discussions, the plan for Citi resembles the original TARP proposal, in which the government would buy bad assets for financial firms at some price higher than what's being offered in the market.

People close to the matter underscore that none of this is a done deal: Other deals, such as the Lehman Brother Good bank / Bad bank proposal blew up at the last minute. Citigroup had no immediate comment. CNBC is still waiting on comment from the Treasury and Federal Reserve.

Reports from Washington say the White House is unaware of any government talks with Citigroup. It also declined comment on whether President Bush would back a government rescue of Citigroup.

Citi officials are reportedly working on a plan that could include a capital injection from the Federal government—among other possible ideas. The details have yet to be hammered out and it's not clear when such a plan would be announced.

No Plans For Federal Takeover Of Citi

As of Saturday afternoon, the general consensus between officials from Citi and government officials from the US Treasury department and US Federal Reserve is that the government will not takeover Citigroup in the way it took control of AIG [AIG 1.60 0.16 (+11.11%) ] — by lending the firm massive amounts of money and in return assuming a huge equity position.

Government officials fear taking over Citigroup would create a precedent: Unlike AIG, Citigroup's balance sheet is relatively healthy, with relatively strong levels of capital particularly compared to most of its competitors.

Still, officials from the Treasury and Citigroup are unsure what it would take to restore confidence in the company, including a possible smaller capital injection or some sort of statement that Citigroup is financially sound.

For that reason, Citigroup officials are continuing to explore possible merger possibilities and a spin off of some of Citigroup's businesses, even as SEP Vikram Pundit publicly stated the sale of the firm's massive and coveted broker business, Smith Barney is off the table, these people say.

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Four Stocks That Are Actually Going Up

Unusual times call for unusual measures ... and I think a bear market qualifies as unusual times.
In a bullish or even neutral environment, basic fundamental analysis can help you find solid opportunities. In a bear market though, the rules change. Undervalued stocks can become more undervalued, as the falling tide pulls down even the best of equities. Logical or fair? No, and no. However, that doesn't change the fact that a long-only investor loses money if one or more of their stocks sink.

I suggest an alternative approach in a rough market…one that may be a little unusual, though certainly simple. Rather than starting a search for undervalued companies, why not start your search by finding stocks that are actually moving higher?

I know, I know…it sounds like I've crossed over into the world of technical analysis. Well, maybe a little, but for a good reason. I can cross back into the fundamental world though, by further narrowing the field to just those companies with solid fundamentals. The result is the best of both schools of thought. (To learn how this method can help investors increase profits, check out Blending Technical And Fundamental Analysis.)

If you'd still rather let someone do the digging for you, no problem. I've narrowed a short list of rising stocks into an even shorter list of four stocks, simply by eliminating any tickers of poorly-performing companies. Here are the survivors:

Family Dollar Stores
Some recent retail sales reports have been disappointing; J.C. Penney (NYSE:JCP), Dillard's (NYSE:DDS) and Nordstrom (NYSE:JWN) all struggled in June. Value retailers, however, have actually thrived on being able to cater to money-conscious consumers. Take Family Dollar Stores (NYSE:FDO) as an example. In June, same store sales were up 8%, and total monthly revenue was up 10.7%. The stock hit new highs for the year this week, and has gained 8.7% since early May.

ViroPharma
If we're truly in a bear market, you sure wouldn't know it by looking at shares of ViroPharma (Nasdaq:VPHM). The stock is up 42.9% year-to-date. However, there's still plenty of room between the current price of $11.98 and last year's high around $18.

What gives? Since ViroPharma is a one-trick pony, err, one-drug company, the market's concern has been that a generic pharma company could develop the equivalent of ViroPharma's antibiotic Vancocin. The patent expired years ago. More recently, though, Vancocin worries have been eased. It's now believed the FDA will require any similar drug to be proven to act as the equivalent to Vancocin and not just perform comparably to it.

The market doesn't seem to think that's likely to happen anytime soon. (To learn how to find healthy drug companies, read Measuring The Medicine Makers.)

Rent-a-Center
Although the 4% gain over the last two months isn't exactly stellar, Rent-a-Center's (Nasdaq:RCII) performance helps sweeten the pot. The company swung to a loss in calendar Q4 of last year, but got back in the black in Q1 of this year, and investors have slowly trickled back into the stock.

Rent-a-Center is the second largest rent-to-own outfit in the United States. The common theory is that the credit crisis and slowing economy have been a blessing for companies like Rent-a-Center. Consumers who can't afford to buy outright should be flocking to these rental-to-own alternatives. After a disappointing 2007, there's lots of room for improvement. That's the attraction.

The9 Limited
Although it's up by 21.4% in the just the last two months, The9 Limited (Nasdaq:NCTY) is still well under July's peak around $35.00, which leaves plenty more room for recovery. The current price is about $25.60.

You may not know the company, but odds are you know something about what it does do. Perhaps you've heard of a little 10-million-subscriber online adventure game called "World of Warcraft"? The9 Limited is licensed to operate the subscription-based sensation to Chinese gamers. The company's growth rate has been tremendous. Earnings are up by 35.7% on a YOY basis, and revenue is up 62.7%, also on a YOY basis. The upcoming addition of online game "Audition 2", and the World of Warcraft expansion "Wrath of the Lich King" should further enhance growth.

Parting Thoughts
Do you see any common elements in these four stocks? From my point of view, they're all "distressed economy" beneficiaries, or immune to economic woes including The9 Limited.

Even if you're not a fan of these particular stocks, I think you'll find comparable strength in each of their particular industries. More importantly, I think you're more apt to find rising stocks in each of their industries. And that really is the point, isn't it?

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Getting Technical With Biotech (GENZ, GILD, ILMN)

The Dow Jones U.S. Biotech Index recently closed at the best level of 2008 as the Dow Jones Industrial Average traded at a new yearly low. The relative strength shown by the biotech stocks makes this a sector that investors should be focusing on for the second half of the year.
Stock Selection
The issue that many investors have with investing in biotech stocks is the great disparity between the top and bottom performers in the sector. For example, through the first six months of 2008 the top performing biotech stock in the Nasdaq Biotech Index was Idenix Pharmaceuticals (Nasdaq:IDIX), which rose 169%. The stock on the opposite end of the spectrum was Genitope (Nasdaq:GTOP) with its loss of 95%. As you can clearly see the most important aspect of investing in the biotech sector is stock selection.

Next we will examine five biotech stocks that have shown a strong combination of both fundamental and technical qualities. (For more on choosing a stock based on these characteristics, read Blending Technical And Fundamental Analysis.)
The Biotech Watchlist
Genzyme Corporation (Nasdaq:GENZ)
Genzyme is one of the larger biotech firms in the world. The company's No.1 product is a treatment for a rare disorder called Gaucher's disease. The drug, Cerezyme, generated revenue of $1.13 billion in 2007, nearly double the next largest selling drug, Renagel. Some of its drugs in the pipeline that are promising focus on stem cell transplant and multiple sclerosis. Technically, the stock has been in a solid uptrend since bottoming out in 2002 and recently broke a short-term downtrend and is within 10% of the all-time high of $82 set in January.
Gilead Sciences (Nasdaq:GILD)
Speaking of strong technical setups, for the last 14 years Gilead has remained in a long-term uptrend that continues to move the stock higher through both bull and bear markets. The company is best known for the drug Tamiflu and its host of HIV drugs. In 2007, more than two-thirds of Gilead's sales came from its HIV drugs. Because HIV continues to be a worldwide epidemic, the demand for Gilead drugs should remain high into the future.
Illumina (Nasdaq:ILMN)
Since 2003, Illumina has rivaled Gilead for the best chart of any biotech stock. An increase of nearly 5,000% in five years is not a shabby return. The company is in the business of genetic research, which is one of the areas within biotech that is cutting edge and has a lot of buzz. The beauty of Illumina's business is that it sells equipment to the biotech firms and therefore does not rely on one drug to keep sales growing.
Martek Biosciences (Nasdaq:MATK)
The chart of Martek is quite different from the previous two stocks. After trading in a downtrend for three years, the stock broke out in mid-2007 and has been moving higher ever since. What the company does also differentiates it from other biotech companies. It develops nutritional oils from microalgae and fungi that are then used in everything from vitamins to baby formula. In June, the company reported an 89% increase in second-quarter profit, but also warned the third quarter will see a slowdown. The key is to use the volatility and dips in this type of stock as buying opportunities. (To learn more, check out Understanding Volatility Measurements.)

Savient Pharmaceuticals (Nasdaq:SVNT)
Savient is one of the few companies that can brag it is hitting a new all-time high as the overall market breaks down. The company focuses on two main areas: involuntary weight loss and gout. It only has one drug on the market currently, Oxandrin, used to tread involuntary weight loss from surgery, HIV, or other disorders. Savient's gout drug has received orphan status from the FDA and hopes it will receive full approval later this year.
The Biotech Risk Factor
What investors need to realize about biotech stocks is that many of them will be swayed by the sales or approval of one or two drugs. Because of this reliance on such a narrow product base, it is important to understand the volatility and risk that accompanies investing in biotech stocks.

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