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Laugh it up Chuck

Written By Brian Hicks

Posted November 28, 2007




Somewhere this morning in his velour sweat suit Chuck Prince has got to be laughing his head off. Not just chuckling mind you, but cackling uncontrollably, his eyes full of tears.

That’s because "when the music stopped playing" and wheels started wobble at Citigroup, Chuck slipped out the back door with over 68 million good reasons not to work again.

He also bagged a $1.7 million pension, an office (what for nobody knows), a car and driver for the next five years.

And then to show that there were no hard feelings Citi also paid its former CEO a $12.5 million cash bonus for all of his hard work last year.

That was his reward for helping to lop off $124 billion in market cap from Citi in the last 12 months.

Now if that’s not funny I don’t know what is.

But that’s the absurd and hilarious world of the smartest guys in the room these days. They win no matter how bad they manage to screw it up.

Meanwhile the ship that Prince ran into the ground continues to take on water. In fact, it was only after marathon negotiations and an 11th hour visit by Citi Chairman Robert Rubin, that Abu Dhabi decided to take something of a gamble on the Prince’s folly.

And while the news of the deal helped to spark yesterday’s rally, the terms of the deal seemed outright desperate.

From CNN: Citi’s $7.5B infusion met with criticism

"Abu Dhabi‘s $7.5 billion stake in Citigroup Inc. is more than just a bandage for the bank, but it’s far from a cure."

‘It’s a bad deal,’ said CIBC World Markets analyst Meredith Whitney in an interview, pointing to the 11 percent yield, which is nearly 4 percentage points higher than the yield the bank gives shareholders through dividends.

‘Someone was not using their calculator on this deal,’ she said, adding that a dividend cut would have been better for shareholders. She also said that selling off assets would help. It’s hard to say which assets Citi would choose, but she said it could be anything ‘from credit cards to mortgages to Smith Barney.’

Sandler O’Neill & Partners LP analyst Jeff Harte said in an interview the yield was in line with similar deals over the past couple years, and that the sale was reasonable given the tight credit markets. However, he added, ‘their decision to raise capital given the current market is somewhat troubling. They may be more capitally constrained than we’d like to think.

The 11 percent yield is higher than investors get for non-investment grade bonds, noted Bill Smith, president of SAM Advisors LLC, which owns 60,000 Citigroup shares. ‘We blew right through junk status,’ he said.

Blew through junk status? Ouch.

Of course, on top of that there were also the rumors earlier in the week out of CNBC-which Citi denied-that they we’re getting ready to layoff 45,000 employees in the latest round of cost cutting.

Now performance like that really does takes talent. I mean its not everybody that can run a bank like Citi into the ground like that.

So go ahead and laugh it up Chuck, because when you really think about it’s pretty comical.