David vs. Goliath

A couple of weeks ago, shares of Citigroup sunk below a dollar at the New York Stock Exchange. Nobody, not in their worst nightmares, would have imagined that the American bank giant could lose in a year and a half more than 90 percent of its value. Last week shares stood on average at $3 USD, a price still incredibly low for what has been an icon of the U.S. economy.

Who would believe it? Two years ago, in the Colombian and international financial markets it was rumored that Citigroup was interested in buying Bancolombia, the country’s largest bank. That didn’t sound strange whatsoever. According to the value at the stock exchange, among the two banks there was a huge difference. In June 2007, Citigroup was worth $255 billion USD more than 70 times that of Bancolombia. But things are different today.

Citigroup’s collapse has been so great that its value was reduced to $14 billion USD, four times Bancolombia’s value, whose market capitalization ascends to $3.5 billion USD.
If he had wanted to, the multimillionaire Warren Buffet could have used the millions of dollars that he reinvested last year by buying shares of several companies (General Electric, Goldman Sachs and Constellation Energy) in order to take control of Citigroup.
The magnitude of the loss of wealth that this crisis has left is incomprehensible. The risk capital firm Blackstone Group estimates that just the stock market collapse has cost $11 trillion USD in the United States.

Several of the most emblematic American companies have ridiculously low prices in the stock exchange. Almost half of the shares on Wall Street are traded for under five dollars.

Even some are worth less than Colombian businesses. One year ago, the market value of General Motors was $14 billion USD. Today it’s worth the incredible sum of $1.75 billion USD. It is below the value of Colombian companies such as Argos ($3.1 billion USD) or the Nacional de Chocolates group ($2.6 billion USD).

The destruction of wealth is reflected in many other American symbols. The financial and insurance giant AIG, submerged in the worst scandal of its history, has been harshly punished by the market. Its shares were quoted last week at less than a dollar ($.96 USD) in the New York Stock Exchange. Today its value reaches $4.3 billion USD, one and a half times that of Grupo Aval in Colombia and a little more than Suraminv, the holding company of Suramericana de Seguros. It’s worth nothing that, through the rescue package, the United States government is owner of 80 percent of AIG.

In Europe things aren’t better. Banks have lost an important percentage of their market value. A year and a half ago, Royal Bank of Scotland was worth $120 billion USD and today it’s worth $4.6 billion USD, a little more than Bancolombia and two times that of Banco de Bogotá.

HSBC, the European giant, has also collapsed, going from $215 billion USD in June 2007 to $97 billion USD today. The pride of Swiss banking, UBS, has lost 70 percent of its stock market value. Today it is worth $35 billion USD.

Definitely, the crisis devastated wealth and the recovery forecasts are shocking. The prestigious professor from Harvard, Kenneth Rogoff, believes that the United States will take at least until the end of 2011 to recover the level of GDP that it had in 2007.

It must be said, that if Colombian businesses have been hit by the market, fortunately none is at a bargain price yet.