CITI FACING LIQUIDITY CRISIS
November 2nd, 2007Via: Business Week:
For all its financial might, Citigroup (C) is undercapitalized according to some Wall Street analysts sounding fresh alarms about the banking behemoth’s balance sheet. Citigroup shares tumbled nearly 7% on Nov. 1 after three analysts downgraded the company’s stock.
Citigroup’s tangible capital is 2.8% of assets, just over half the industry average of 5%, according to Meredith Whitney, a bank analyst with CIBC (CM) World Markets. “They don’t have enough capital, pure and simple,” Whitney says. “They will have to address that, ASAP.” She downgraded the stock on Oct. 31 to sector under performer from sector performer. A Citi spokesman declined to comment on the report or on the issues it raised.
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Ok, dumb financial question here. Does “under-capitalized” mean that their tangible, on-hand assets are only 2.8% of their liabilities? Is it related to the practice of fractional reserve banking, or am I way off base?
– Mike Lorenz