Should the Chinese buy beleaguered Citigroup? The perspicacious David Goldman of the Inner Workings blog notes that Citi owns a bit less than 4 percent of Shanghai Pudong Development Bank. It has a market cap of $18 billion. Citi has a market cap of $17 billion. How about a reverse takeover by Pudong? Here is why Goldman thinks it makes sense:
1) Citigroup’s structured portfolio of “toxic” assets is extremely cheap and manageable now that it doesn’t have to be marked to market. You own a bunch of this garbage anyway, and fund managers turn up on your doorstep daily to pitch distressed investing. You can do a whole lot better buying a distressed bank and leveraging a distressed asset play.
2) You can sell off most of Citi’s operations for a modest profit. America doesn’t need another branch bank after Wells Fargo/Wachovia, Chase/Washington Mutual, and Bank of America. Citi should get out of its consumer businesses and devolve into an international wholesale bank. Its main profits should be the runoff on its portfolio, which out to be worth a lot more than $3 a share.
3) By owning a major bank you get a seat at the table of corporate America. You get a peak inside the kimono at every American corporation and the inside track on future mergers and acquisitions. The business intelligence value of owning the franchise has to be worth a few billion dollars. That’s not counting Citi’s international branch network, which would give you the inside track on a dozen countries you don’t know much about.
Me: Of course the political uproar here would be eardrum shattering, though it could mean a profit for Uncle Sam on its Citi investment.