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Dear Mr. Berko:

Dear D.N.:

Citigroup reminds me of Humpty Dumpty, and I sincerely doubt all the president’s horses and all the president’s men can put Citigroup back together again.

I never liked Citigroup. I never liked Citigroup Inc. (C — $3.20) because it was so big, so sprawling and because it has more moving parts than the Rose Bowl full of Swiss watches. And none of those watches ever had the correct time. I began to like Citigroup even less when John Reed resigned in a row with Sandy Weil, who then assumed czar-like control. I worked for Sandy Weil years ago. He’s a high-strung, power-mad, ego-driven CEO and ran Citigroup like it was his private Tinkertoy set.

Weil was enamored of the “financial supermarket” concept. He believed that he could create seamless financial harmony by integrating consumer and corporate banking, insurance and brokerage operations, investment banking and asset management, international and consumer finance, all at the same address. In the process, Mr. Weil bought, merged, sold and traded businesses like a kid trading baseball cards. His strategy was so complex, cumbersome and bureaucratic that its myriad moving parts were racing in a thousand different directions simultaneously.

Though some believed that Citigroup was too big to fail, I believe that Citigroup failed because it was too big and the left foot didn’t know where the right foot was going. Weil was not a manager; he was a dealmaker who believed that the long term was six to nine weeks.

Citigroup has more than 200 million customers (imagine the postage cost to send statements to 200 million accounts every month) in 103 countries and nearly 300,000 employees. The company reported a third-quarter loss of $3.2 billion; however, some sources suggest that the real number may be closer to $6 billion. International loan losses were enormous; consumer loan losses were just as huge, as were losses from its credit card business, and those losses continue to grow. Revenues from its awesome moneymaking trading division were down by billions, and Citigroup’s mortgages continue to put pressure on the company. Though other banks seem to have these divisions under control, Citigroup’s operations focused primarily on growth that prevented management from properly integrating its acquisitions.

I think Citigroup will split in the next nine months. In order to raise its share price to a respectable number, Citigroup may consider a 1-for-10 reverse split. In other words, if you own 2,000 shares of Citigroup at, say, $5 a share worth $10,000, you will end up owning 200 shares at $50, which is still worth $10,000. So, a 1-for-10 reverse split would reduce the number of outstanding Citigroup shares from 5.5 billion to 550 million shares. Management has filed the necessary papers with the Securities and Exchange Commission and must complete the reverse split before July 2010.

If history is a guide, I think you can make a good buck betting against the reverse split rather than buying the stock today at $3.20. I am willing to wager a king’s castle to a gamekeeper’s cottage that if Citigroup does a 1-for-10 reverse split, the stock price will, within 60 days, fall 30 percent or thereabouts. Your broker can tell you how to use an option strategy or how to effect a short sale to profit from Citigroup on the downside.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775 or e-mail him at mjberko@yahoo.com. © 2009 Creators.Com