Up until last year, CitiGroup was the largest bank in the USA and in the top 3 globally.  Now Citigroup is breaking itself up as it desperately tries to avoid total collapse:

• Citi is selling its Smith Barney brokerage and investment business to Morgan Stanley so that it can raise $2.7 B in emergency cash.  Citigroup is selling 51% of Smith Barney now followed potentially by another $2.5 B to follow within 5 years if Morgan Stanley decides to expand its ownership of Smith Barney.
• Citi is also jettisoning 1/3 of its loan book by spinning off $600 B in bad “assets” into a seperate “bad bank” that can be further broken-up and sold off to the US government and other high-risk junkyard investors.

To put the size of this spin-off in a Canadian perspective, the resulting “bad bank” will have 50% more “assets” than the total assets of the Bank of Montreal and slightly more “assets” than the TD Bank.

The $1.2 T magnitude of the 2009 US economic bailout is approximately equal to the size of the entire Canadian GDP.  According to Statistics Canada, the Canadian economy is dependant on exports for 45% of this GDP and 76% of those exports are based on trade with the USA.  However, Canada’s trade surplus is currently plumeting with November 2008 exports running at 50% less than September’s export volume. 

The worst of the fallout has still to hit the Canadian economy and ultimately Canadian banks.  Given the rate of erosion of exports, this will likely occur within 90 days if the balance of trade dips negative.  

In the last 6 months, the largest (Citigroup) and thrid largest (Wachovia) banks in the USA have crumbled – anyone who thinks that the Canadian banking industry is immune to these issues is simply not in touch with reality.

Morgan Stanley studied all high technology IPOs in the USA from 1980 to 2002. During that period over 1705 IPOs occurred, creating $1.6 Trillion in shareholder value.

However, virtually all of that value was generated by only 5% of these IPOs.

25% of companies actually destroyed shareholder value and 31% failed to generate any incremental value post-IPO.

A further 39% were either acquired or produced marginal value for their shareholders.

A big part of the problem is that many high tech companies are built to be sold rather than built to last.

Source: Morgan Stanley, “The Technology IPO Yearbook – 22 Years of Tech Investing”, 8th Edition, March 18, 2002