Is this a buying opportunity for value investors?
Citigroup is certainly not the only financial company to take a beating in the subprime debacle; the financial sector of the S&P 500 index is down roughly 15 percent this year. But some observers see the sector's decline as an opportunity. Tobias Levkovich, the chief U.S. equity strategist at Citigroup Investment Research, estimates that the market has priced nearly $250 billion of losses into financial stocks' current valuations—while such companies have taken only $40 billion of write-downs so far. "We think fear may have trumped reality around this issue, likely yielding some opportunities," he wrote. In addition, at its beaten-down price of under $35 a share, Citigroup's stock offers investors a dividend yield of about 6 percent, which helps make it more attractive to investors.
No less a stock picker than Legg Mason Capital Management Chairman and Chief Investment Officer Bill Miller—whose investment calls outpaced the overall market for a 15-year stretch—said that fear has overwhelmed the valuations of mortgage-related securities, as well as financial, housing, and consumer stocks. "The greatest gains over the next five years will be made in those securities people are panicked about today," Miller told clients. Without citing specific companies, Miller says that his fund has been taking advantage of the turmoil in the market.
To illustrate his value-based approach and the potential gains that can be made from current market laggards, Miller even quoted the Roman poet Horace: "Many shall be restored that now are fallen and many shall fall that now are in honor."
What happens if you have an account at Citigroup and it goes under?
One of the great benefits of the U.S. banking system is that Uncle Sam insures all domestic deposits. That means that even if a bank fails, individual accounts with up to $100,000, and retirement accounts with up to $250,000, are totally safe. Meanwhile, the Securities Investor Protection Corp. insures brokerage accounts up to $500,000 in cash and securities. And Smith Barney provides additional insurance for its accounts in the event of a failure.
