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Penny Stock or Not, Citigroup's Bonds Have Value


Citigroup’s stock might be worth pennies, but Citi’s short-term debt is still a good buy, according to Jason Graybill, who co-manages the fixed-income team at Carret Asset Management in New York, which manages $1.3 billion.

(Citigroup’s (C) stock traded below $1 early Thursday.)

Graybill says Citi’s short-term senior debt—bonds maturing in three years or less—is a safer bet because the government won’t let the company default. He points to the equity-but-not-debt implosions at Fannie Mae, Freddie Mac, AIG and now Citi as prime examples of cases where bondholders are still receiving interest payments and returns of principle at maturity. “With the major banks, you really don’t want to have exposure to common stock, preferred stock or subordinated debt,” Graybill says. “Those investors are in for a long, choppy ride.”

In fact, Graybill says there is an attractive opportunity for short-term senior debt at all of the major money centers. “The government has quasi-nationalized the banking system, putting good money after bad to support the financial infrastructure in this country,” he says. “As senior debt holders, we are multiple steps above the government on the capital structure ladder – a position we find attractive.”

Another manager I spoke to this afternoon thinks Citi’s stock is a buy under $1.

What do you think? Would you buy Citigroup debt—or equity—at this juncture?


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