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January 14, 2008

Who's the Damsel in Distress, and Who's Got the Cash?

Isn't it ironic that there's seemingly a debate among Chinese officials about whether an investment in one America's largest banks--Citigroup--is a sound investment opportunity? (Read more in the Wall Street Journal.)

I've expressed my skepticism about the multiples at which Chinese banks trade, but based on recent track records, it's a lot harder to find evidence that Citigroup is a markedly better managed bank than ICBC, China's largest bank. In fact, as recently as a year ago, most knowledgeable observers would have sooner bet that ICBC would be much more likely to announce a $24 billion write-down in asset values than Citigroup, yet the latter looks poised to not only to post a massive write-down, but to slash the dividend and eliminate thousands of jobs in order to "stabilize its finances", as one press account put it.

Not only is Citigroup the winner of this meltdown derby, but they're apparently getting turned down by the Chinese in their quest for capital to plug the holes.

ICBC and other large Chinese banks could end up in similarly tough straits when the Chinese economy has its own stormy weather. The irony of what's happening now, however, is simply delectable.

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