Captain Titanic shuffles the Citigroup deck chairs again

Citigroup (C) keeps rearranging those deck chairs.

The latest move on the banking industry’s Titanic is the ouster of Teresa Dial, head of the North American retail banking unit since 2008. The company announced that Dial will leave to pursue personal interests.

She would be replaced by Manuel Medina-Mora. He has been CEO of Citi Latin America since 2004. Prior to that he was CEO of Banamex.

Certainly the North American consumer banking business needs to work better. In the third quarter the consumer business, including credit cards and mortgages, generated a $9.4 billion loss.

But I think the real message in this latest shakeup is that the big problem remains at the top.

Update State Street (STT)

Jubak Picks 50 portfolio member State Street (STT) is gradually finding its way back to its core business of collecting fees for managing assets that belong to others and away from an ill-fated build up of its own investment portfolio. At the height of that past strategy State Street’s investment portfolio had climbed to 50% of total assets, according to Morningstar. That strategy rested on a base of cash raised in the short-term markets, was sometimes invested in complex instruments that carried more risk than advertised, and led the company into using off-balance sheet accounting gimmicks to diminish reported risk. All that blew up on State Street in the global financial crisis. And as a result the company has spent quarters rebuilding its capital through a $1.5 billion equity offering, moving $23 billion in assets back onto its balance sheet, and setting aside $618 million in reserves to cover investor lawsuits.

 But as I wrote in my December 15 post, the financial companies that now show the most promise as investments are those reformed sinners who came out of the crisis not undamaged but just less damaged than competitors. (http://jubakpicks.com/2009/12/15/reverse-goldilocks-bank-stocks-the-best-buys-werent-really-terrible-or-really-good-but-just-bad-enough/ )

It’s that reformed sinner status that has let State Street go back on the acquisition trail picking up fee-paying assets from more damaged competitors.

I can hear shareholders screaming but I still think Citigroup got off easy

I think Citigroup (C) just got off easy. If it were up to me, I wouldn’t have let the company repay its government loans so it can pretend to be just a regular bank again. Not yet. Not by a long shot.

You see there’s still the little problem of the $617 billion in troubled assets that Citigroup (C) stuffed into Citi Holdings. Yes, it would be nice to pretend that these aren’t Citigroup’s problem anymore but it simply isn’t true. And pretending that troubled assets disappear just because a bank says they’re off the balance sheet was critical to turning the bursting of a bubble into a global financial crisis in the first place.

On the surface, it looks like the Obama administration got real tough with Citigroup. But that’s only on the surface.

Reverse Goldilocks bank stocks: The best buys weren’t really terrible or really good but just bad enough

Ah, to be healthy bank that dodged the last financial crisis in residential mortgages and isn’t cowering in fear of the new one in commercial mortgages and loans.

You be hovering up deposits from savers looking for safety. Licking your chops at all the tasty businesses that competitors not as skilful or lucky were selling off at bargain prices. And enjoying the steepest yield curve in 30-years where short-term deposits or borrowing costing almost 0% can be turned into loans prime (currently 3.25%) plus.

Heaven.

Actually, a bank doesn’t have to be quite as pure as the driven snow to enjoy that paradise. You can even have taken a bath in the financial crisis. Issued mortgages to dead-beats unable to pay. Bought your way into businesses you didn’t understand at what turned out to be the peak of the market.

You could have done any and all of that—and still be in a position to clean up on the woes in the financial sector—as long as you’ve recovered more quickly than your peers. So desperate as investors and regulators for anyone to take the worst turkeys off their hands before they turn into billion dollar liabilities that all past sins are forgiven if you’ve got a  balance sheet now that looks strong enough to bear the load.

Banks like these—I’d call them reformed sinners—are to me the most interesting and potentially profitable segment of the banking sector. Because they didn’t dodge all the damage of the financial crisis, they didn’t snap up big deals in the early days of the crisis. So they’re not full up. But now that they have put their sins behind them to emerge as potential “rescuers” rather than candidates for rescue, they’re in a position to pick through what is still a most attractive and still growing pile of distressed financial companies.

I’ve got two banks like this to tell you about in this post. One I’ll add as a buy to Jubak’s Picks with this post. The financial sector is correcting now and it’s a reasonable time to add a financial stock. The other I’m going to put in my Watch List because the financial sector correction might have a way to go yet and what’s a bargain now might become a still bigger bargain not too far down the road.

Santa is leaving coal for regional bank stocks this year

‘Tis the season for tax-loss selling. When good investors go to sleep with visions of taking losses to offset profits dancing in their heads.

Investors sell losing stocks in November and December in order to generate tax deductions they can use to offset profits earned during the year. And historically that end of the year selling helps power what’s known as the January effect as investors with cash from their December disposals step in to buy bargains created by that end of the year selling.

I’d imagine that both the tax-loss-selling and the January bargain hunting are going to be the same but very different this year. It’s not often that investors go into December looking back at both a 64% gain in the Standard & Poor’s 500 (from the March 9, 2009 bottom) and a 53% loss in the 14-plus months (from January 1, 2008 to that March 9 2009 bottom).

In other words investors have plenty of profits to offset—from 2009—and lots and lots of candidates to sell from 2008-2009.

My guess, and it’s really no more or less than an educated read on investor psychology, is that the selling will be especially heavy in those stocks that have under-performed during the rally. No one really wants to sell a great recent performer at a loss. The impulse, research into investor behavior shows, is to hold it until the position breaks even.

But wait, we’ve had a huge rally. Can’t be many stocks down for the year, right?