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Bill Ackman Explains His Big Bet On Citigroup (C)

May 28, 2010 1:21 PM EDT
Just over a year after saying that America had suffered "the equivalent of a heart attack," Bill Ackman of hedge fund Pershing Square Capital said that the country has healed and his massive bet on Citigroup Inc. (NYSE: C) is the proof that he believes it, in an interview with Yahoo Finance's Tech Ticker.

"If you had asked me a year ago could I conceive of owning Citi 12 months later?', I couldn't conceive of owning the company," he says. "It was hard for me to even look at it in light of a year ago."

On Wednesday, the day after the Treasury announced the sale of 1.5 billion shares of Citigroup, Ackman took the Street by surprise in revealing his firm's substantial stake in Citi. He stated at the annual Ira Sohn investment research conference that his firm had bought 150 million shares of Citigroup.

At the conference didn't have time to explain his investment thesis in Citigroup.

In the Tech Ticker interview though, Ackman gave several reasons to why Citigroup is an attractive investment for his firm at the time, including Citigroup being one of the best capitalized banks, thanks to the U.S. government converting its preferred stake in the firm to common stock last year.

Another incentive to owning Citigroup at this time is the fact that the Federal Reserve rates are still at all time lows making it a great time to make loans and that the bank can make attractive spreads, since collateral values are diminished and lending standards are higher.

Also, despite the black eye to its reputation the bank received during the economic meltdown, Citigroup still has a "great deposit franchise" according to Ackman, along with a "very well capitalized balance sheet." Ackman also noted that the bank has less exposure to home equity loans than its rivals.

Ackman went on to say that the silver lining to the credit crisis was that all of the smart business leaders in the country took the opportunity to restructure their businesses to operate more efficiently on lower revenue. As companies continue to return to profit levels scene two year ago, these businesses are in a better position going forward.

General Growth Properties Inc. (NYSE: GGP) and the future IPO of General Motors Co. are other investment opportunities that Ackman believes will benefit his firm. The firm's investment in General Growth has grown 50 times since Pershing made a bet on the company.

"I think the market's not particularly expensive," Ackman said. "Look at large-cap, very high quality businesses today [and] they seem pretty cheap to me."

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William Ackman, Pershing Square Capital, Citi, Hedge Funds