Citigroup (C) is the most-shorted stock on any major U.S. exchange, according to data from the New York Stock Exchange and the Nasdaq for short interest in the period that ended Feb. 28. Shares sold short in the big bank totaled over 405 million. That puts it well ahead of the next two stocks -- Sirius XM Radio (SIRI) at 247.6 million and Ford Motor (F) at 171 million.
Citi's position at the top of the pack is due to the bank's stock price and ongoing concern about its balance sheet and mortgage foreclosure practices.
Citi's shares have underperformed its peers over the last quarter. The stock is down 2%, while the Dow Jones Industrial Average is higher by 5%. More damning, shares of Bank of America (BAC) are 15% higher, and JPMorgan's (JPM) are up nearly as much.
Citi continues to be a proxy for Wall Street's suspicions about bank balance sheets. Bank of America elected to spin off its worst mortgage-backed holdings along with other troubled securities by spinning off a "bad bank." This will contain many parts of Countrywide Credit, which Bank of America bought two years ago. Analysts fear that if Bank of America has a significant balance-sheet problem, then Citi probably does, too.
Citigroup has also been drawn into the mortgage foreclosure documentation scandal. As DailyFinance's Abigail Fields has shown there's evidence that CitiMortgage used questionable foreclosure methods. Currently, a number of state attorneys general have said they'll likely sue banks that engaged in fraudulent practices. Settlement talks are ongoing, and legal authorities have offered terms, but they could cost banks billions of dollars. The alternative is that Citi and its peers will be drawn into multiple court battles.
Citi's problems are the industry's problems -- and the banking crisis may not be altogether over.
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