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Wednesday, December 16, 2009

Citi daily review

The news about paying back the TARP money unleashed the selling pressure on the bank stock and the price fell bellow the support level of 3.80-84. One of the questions now is if the stocks being sold are from the 5 billion the government decided to sell. Still the government officials said they expect 13-14 billions profit from their investment in Citi. With about 7.7 billions of stocks such profit comes to an average increase in the price between $1.68 and $1.81 from the initial conversion price which was $3.25. If we accept that the government selling started after the news about paying the TARP was published this makes the best selling price at about $3.80. If the whole number of shares were to be sold at that price, which they were not because the total turnover volume didn't exceed a billion, the profit would be about $2.75 billions. So the gap of about $10 billions between that figure and the whole profit the government expects shoud be filled from somewhere. Or they could be possibly wrong in their expectations... With the government being left with about $2 billions of stocks, a profit of $10 billions goes to a price increase of about $5 from their initial price. So continuing this line of thought they could be expecting in the next 6 to 12 months a price of about $8 for the Citi stocks.
An interesting thing to mention is that Citi hasn't issued yet a price at which it will try to get its new shares sold in order to pay the remaining part of TARP. A reasonable thinking is that it waits to see where the price will be after the government ended with their selling. Another reasonable thinking might be that Citi needs a price as high as available because this will let it sell less shares. On the other hand the bank might not be in position to be able to "negotiate" a price at that deep level.

The above are just some thoughts derived from the movements and news on the market.. A hypothesis which could be right or wrong, the time will tell.

The technical daily view of the stock.
The price fell bellow the support level of $3.80. The volume of the last two days grows and the price falls accordingly. MACD points downward, Stochastic also. Today we could witness another fall. The next support level is around 3.30-20.

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