Citigroup welcomed Wachovia’s new CEO Robert Steel today with a few words of praise, and then savaged Wachovia (WB).
Citi on Steel:
While Mr. Steel has not worked at a commercial bank, we do not view this as an issue since the core bank is operating fine under Ben Jenkins. What we see as more relevant is his strong markets knowledge, and we believe it is incremental positive to have leadership in place now to address how to improve WB’s capital position… where he will be faced with difficult choices.
Citi then lays into WB, bashing the bank’s terrible capital position and suggested that Steel should slash WB’s dividend:
Our work continues to show WB as among weakest on capital, which is a sentiment shared by the market with dividend yield of 11%. We do not see tremendous capacity/investor appetite for trust preferred or preferred issuance, and with the stock at such low levels, we believe mgmt will conclude a common issuance does not make a lot of sense here. One obvious choice, especially for a new CEO, seems to be to slash the dividend where WB pays $3.5 billion/yr, and we are assuming a 75% cut.
Citi lowers its FY 2008 estimate from $1.50 to -$1.24. Its 2009 estimate drops from $2.60 to $1.70. Target price moves from $25 to $14.