Yes, We Have Healed: Why Bill Ackman Is Bullish on America ... And Citigroup

In April 2009, Bill Ackman of Pershing Square Capital Management said America had suffered "the equivalent of a heart attack, but now we are in recovery, hopefully. It takes time to heal."
Fast forward 13 months and, "yes," America has healed, Ackman says.

Furthermore, "I think the market's not particularly expensive," the famed activist hedge fund manager declares. "Look at large-cap, very high quality businesses today [and] they seem pretty cheap to me. "

Much to everyone's surprise - including Ackman's - those "very high quality businesses" include Citigroup. On Wednesday, the day after Treasury announced the sale of 1.5 billion shares of Citi stock, Ackman stunned Wall Street by revealing his firm has taken a big stake in the big bank.

With theatrical flair, Ackman made the announcement as a throwaway line at the end of his presentation at the 15th annual Ira Sohn investment research conference in New York: "And by the way, we bought about 150 million shares of Citigroup, but I don't have time to talk about it," he said, according to multiple reports.

And by the way, when Ackman and Bloomberg reporter Christine Richard joined us this morning to talk about Confidence Game, a new book about Ackman's public battle with MBIA (and regulators), I just had to ask him about the Citigroup position.

The Bull Case for Citigroup

"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."

Upon further review - and while admitting "there are still question marks" -- Ackman determined Citi was attractive based (in part) on the following:

-- Money Talks: Thanks in large part to the government's conversion of its preferred stake in Citi to common stock in 2009, Citigroup is "probably one of the best capitalized banks today, ironically," Ackman says.
-- Free Money Is Even Better: Because Ben Bernanke has kept the fed funds rate effectively at zero, banks like Citigroup "effectively they've got free money," Ackman says. Furthermore, "it's a great time to make loans - they can earn attractive spreads" because collateral values are down and lending standards are up.
-- Franchise Value: Despite hits to its reputation in recent years, Citigroup still has a "great deposit franchise" and a "very well capitalized balance sheet," the fund manager says. In addition, he notes off camera Citi has less exposure to home equity loans than most of its big competitors.
In sum, "it's really a great time to be in the banking business," Ackman says.

Watch the accompanying video for more about Ackman's take on Citigroup, General Growth Properties and other investments -- and stay tuned for additional segments where Ackman and Richards discuss Confidence Game and the ongoing war against the shorts.