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Investors think Citibank is still in the dark about the value of its assets (Loans/mortgages) and are worried, thinking it is time to sell. Not so many buyers, so price of stock, which represents the worth of the bank, goes down. Stocks are not the assets of the company, but rather a ownership share of the company. Picture the bank having say three branches, each worth $300,000 for a total value of $900,000 plus some loans/mortgages worth $1,100,000. Say there are 200 hundred shares outstanding and you have 10 of them. Each share is worth $10,000. ($2,000,000/200 = $10,000). Your 10 shares are worth $100,000. You hope the company makes some money and pays you a portion (a dividend) each quarter, and that the price of each share goes up. Unfortunately, some of the loans are not paying and the branches are losing value in the RE market, so your shares will be hard to sell for the $10,000. No buyers have the confidence in the present market to invest in the bank now. What to do? Cut your loses and sell now or hold on and wait for some rationality to return to the market.
The banks that are closing up (Declaring bankrupcy) are doing so because they don't have the money to make good on the loans they have taken out, or to return the depositors their money. Maybe they can't pay the help (tellers etc.) because the loans they made are not paying. I don't think Citibank is that far along, but obviously something is spooking the investors, and they don't want to own this bank and so they do not want to buy this stock.
My wife has had 100 shares of Citibank for years and at one time after trading around 20 - 30 dollars a share, it had to clear out a bunch of bad loans and the stock dropped to around $10/share. During those 2 or 3 years it paid no dividend. Then the price soared and the stock split several times, and now she has 1000 shares. Dividends poured in at the rate of about $400 a quarter for this original 100 share investment and the price hung around 50/share. In september it dropped to around 30/share. In oct it dropped to 20 share. then 10 and now 4.
I'm convinced the market is just freaked out right now and will soon realize that this 800 billion dollar bank isn't going anywhere. The return in dividends over the years have made the investment worth much more than many other investments.
Long winded, I know, but maybe it helps to get this off my mind.
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