Citigroup Inc. may be one company almost universally loved by analysts, but for some investors the companys sheer globe-spanning size can be problematic.
Analysts say that could be why Berkshire Hathaway Inc., the Omaha company headed by Warren E. Buffett, sold all 2.7 million of its Citigroup shares valued at nearly $128 million as of Dec. 31 in the fourth quarter. Berkshire disclosed the move in a 13-F filing at the Securities and Exchange Commission late Thursday.
Mr. Buffett owns much larger stakes in two big but relatively straightforward banking companies: 53.3 million shares, valued at $2.3 billion, in Wells Fargo & Co., and 6.7 million shares, valued at $488.7 million, of M&T Bank Corp. in Buffalo.
And Citi is moving further and further away from Mr. Buffetts model of investing, said Andrew Collins, an analyst with U.S. Bancorp Piper Jaffray. Mr. Buffett is famous for his value-oriented and conservative investment strategies.
Early last year Mr. Buffett warned about unforeseeable risks in the financial services sector, noted Michael L. Mayo, an analyst with Prudential Securities Inc. Selling the Citigroup stake might be a move to reduce such risks in his portfolio. Since Argentina and Enron, the unforeseeable risks in the sector have increased, Mr. Mayo said.
Berkshire may have had other motives for the sale such as a wish to offset its losses with securities gains.
On Feb. 5 the company warned of a $1.27 billion pretax underwriting loss from General Re, its reinsurance subsidiary, citing its exposure to the World Trade Center attacks and a need to build reserves. Berkshire is scheduled to announce its fourth-quarter earnings in early March, and some analysts said it may have sold its Citigroup shares to shore up its results for the period.
Mr. Buffett is buying stocks for investment reasons, said John M. Roberts, who follows Berkshire for J.J.B. Hilliard, W.L. Lyons Inc. of Louisville, Ky. Divesting the Citi shares may just be a valuation call, he said, because Berkshire does not need the capital and the company is known to shift its portfolio when prices seem compelling, he said.
The Citi stock may have been among Mr. Buffetts best bank stakes to divest, many analysts agreed. Its share prices were falling along with the broader market after Sept. 11 but recovered late that month and rose until yearend. On Dec. 31 the stock closed at $50.48, just 1.1% below its yearend 2000 close.
But the last quarter was difficult for Citi. Economic problems in Argentina grew into a full-blown crisis, and analysts covering the company indicated Friday that this is an example of their problem with Citigroup it is hard to assess because its global reach makes it unusually complex.
Citigroups shares fell 3.12%, to $44.13, Friday. The American Banker index of 225 banks fell 1%.
Christopher M. Mutascio of Legg Mason Wood Walker Inc. initiated coverage of Wachovia Corp. with a strong buy Friday.Mr. Mutascio said Wachovias solid fourth-quarter results have given the Winston-Salem, N.C., company momentum in an improving economy. Though he cited some integration risks from the merger, he wrote, this risk is mitigated by the low premium paid for legacy Wachovia by the former First Union Corp.
Also on Friday, Catherine Murray of J.P. Morgan Securities lowered her 2002 earnings-per-share estimate for Bank One Corp. and PNC Financial Services Group.
In a research note Ms. Murray said she had trimmed her Bank One 2002 earnings target by 6 cents, to $2.80, citing higher than previously expected credit costs of $105 million for the Chicago company. We believe there is considerable upside to our 03 estimate if the economy improves significantly in 02, she wrote.
Ms. Murray cut her estimate on Pittsburgh-based PNC by 3 cents, to $4.57. Her 2003 estimate is $5.05, or 10.5% earnings growth from 2002.
Patrick Reilly contributed to this story.
