Citigroup insiders bought a remarkably small amount of their own stock during the past six months–virtually nothing, in fact. Managers have bought stock on only five occasions during the past six months, and only 2.7 million shares’ worth (by contrast institutions bought 3.7 billion shares in that period). In fact, the bank has offered all-cash deals to mid-level hires, which bespeaks a very low confidence level. I sold my entire position late last summer after the preferred conversion–between March and July it had been the biggest play in my portfolio–and missed the stock’s brief dalliance above $5. But I also netted well over $4. I was an early advocate for a bounceback in bank stocks and an early profit-taker. The stock is around $3.20 this morning after shareholders bridled at massive dilution.

CIti is a pig in a poke. With its massive book of structured product, the bank itself will be hard put to project its future cash flows. Structured product based on mortgages, for example, can have radically different cash flows with a few percentage points of variation in default rates in some cases. But I have thought all along that it’s a $4 stock, and it does look cheap at these levels, despite the dilution.

It’s in management’s interest to take the worst of dilution just before bonus time. Like its peers, Citi probably will pay most of its bonuses in stock; the cheaper the stock, the more shares of stock per dollar of nominal bonus. I am not suggesting that the bank deliberately ran the stock down to goose up year-end compensation–that’s like burning your house down to toast marshmallows–but that only insiders really know how many time bombs lurk inside the portfolio.

Absent other news, I would be hesitant to step in the water until I see insiders come in as well.

This entry was posted on Thursday, December 17th, 2009 at 7:40 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.