Michael Price Shorts Citigroup, Wachovia, Sees Few Banks to Buy

By Jeff Kearns
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Aug. 12 (Bloomberg) -- Billionaire investor Michael Price is betting that Citigroup Inc. and Wachovia Corp. will keep tumbling and says he found few banks to invest in after total losses from subprime mortgages increased to almost half a trillion dollars.

``Citigroup's got more pain coming,'' said Price, who runs New York-based MFP Investors LLC and was chairman and chief executive officer of Franklin Mutual Advisers LLC in Short Hills, New Jersey.

The biggest U.S. bank by assets dropped 33 percent this year after $55.1 billion in writedowns and credit losses tied to the collapse of U.S. credit markets. Wachovia, the fourth-largest, fell 52 percent after $22 billion in charges.

Price, 57, a value investor who made his name buying shares of beaten-down lenders, is adding to bearish bets even after a 24 percent plunge this year in the S&P 500 Financials Index. Analysts project U.S. bank profits will fall 35 percent this quarter after $493 billion in losses from subprime lending sent them lower during the last four.

Price shorted New York-based Citigroup when the shares traded in the ``mid-20s,'' he said. The stock hasn't closed above $25 for more than three months. In short sales, investors borrow and sell securities, hoping to profit by replacing them at a lower price.

Citigroup reported its first loss from credit-card securitizations since at least 2005 last week, signaling that risks may be growing in a business that generated $3.5 billion of revenue in the past three years, analysts said. The stock added 2.2 percent to $19.82 in regular trading yesterday.

Covered Short

Price bought shares to replace his short position in Wachovia during a 110 percent advance in July and August, then shorted the stock again last week, he said. Wachovia rose 1.6 percent to $18.21 yesterday, extending its gain since falling to a 17-year low of $9.08 on July 15.

The Charlotte, North Carolina-based lender ousted Kennedy Thompson as chief executive officer on June 2 after cutting its dividend 41 percent and raising $8 billion. It hired Treasury Undersecretary Robert Steel as chief executive officer July 9, two weeks before reporting an $8.9 billion quarterly loss on a $6.1 billion charge tied to declining asset values.

``Their tangible book value is below $10 a share if they took the right markdowns'' of assets, Price said in an interview in New York. ``We like the guy who's running it -- it's not his fault. He's going to do the right things but the stock's not cheap enough.''

Book Value

Wachovia reported book value of $30.69 a share as of June 2008, according to data compiled by Bloomberg.

Price said bank shares may lead a decline in the Standard & Poor's 500 Index after the benchmark index for U.S. equities climbed 7.4 percent since July 15.

``This rally we've had, this huge rally, seems to me pretty premature,'' he said. ``Dividend cuts are inevitable. You're going to have to see them. How can they pay out dividends if they have to raise capital?''

Price said he plans to buy stakes in smaller banks that are replenishing their capital. He can't find many worth investing in, he said.

``In the next six months lots of banks are going to raise capital and we're going to probably put money into 5 or 10 of probably 50 or 100 we'll look at,'' Price said. ``We're going to be very selective.''

Price bought a stake in Sovereign Bancorp Inc. earlier this year. The second-largest U.S. savings and loan by assets ``is pretty well financed now with good management,'' he said.

``We're looking at the ones who need money,'' Price said. ``If there are small banks who need to raise money, our office doors are open.''

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.