Should the US government just let $hitibank rot?

[marmar]

Citigroup’s Third U.S. Rescue May Not Be Its Last, Analysts Say
By Christine Harper


Feb. 28 (Bloomberg) -- The U.S. government’s third attempt to help rescue Citigroup Inc. won’t stanch the company’s losses, which will continue to swell and may lead the bank to require more money in coming months, analysts said.

Yesterday’s action didn’t furnish the New York-based bank with new money, although it cuts expenses by eliminating dividends on preferred stock. Instead, it converted preferred shares into common equity, which absorbs the first hit in the event of further losses, at an above-market-value price of $3.25. The stock, which has fallen 78 percent since the beginning of the year, closed in New York trading yesterday at $1.50, its lowest since November 1990.

Vikram Pandit, 52, Citigroup’s chief executive officer, told investors yesterday that increasing tangible common equity to as much as $81 billion from $29.7 billion should “take the confidence issues off the table,” regarding the company’s ability to absorb losses. Still, Citigroup, which lost $27.7 billion in 2008, is expected to lose $1.24 billion in the first six months of 2009, according to the average of analysts’ estimates compiled by Bloomberg.

“There’s no difference here,” said Christopher Whalen, co- founder of Institutional Risk Analytics, a Torrance, California- based risk-advisory firm. “It won’t fix revenue, and you’re still going to see loss rates.”

One immediate change from yesterday’s announcement was that the value of the government’s investment fell by more than half. The government said it would convert as much as $25 billion of its preferred stock to common shares for a 36 percent stake in the bank. At yesterday’s closing price of $1.50, that investment is worth about $11.5 billion. Citigroup has a stock market value of $8.2 billion today. ..........(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=a6W90SKfZYZI&refer=home

[depakid]

1. More half measures that just prolong the recession

and delay the inevitable.

[exboyfil]

2. You think that is bad take a look at the capitalization on

AIG. Even after $150B from us in loans and preferred stock their capitalization is $1.1B. Think about it we could have bought AIG nearly 150 times for the money we have already sent it.

Put it another way. Last year approximately $200B went into the Social Security "Trust Fund".

Talking about entitlement reform is ridiculous. S.S. is not even a pimple on the butt of this monster.

[depakid]

4. Speaking of AIG, the NY Times had a concise informative piece

on why it had to be propped up (and why it's an especially infuriating cases).

http://www.nytimes.com/2009/02/28/business/28nocera.html?8dpc

[rucky]

3. If I went to Citibank for a business loan...

I would probably get denied - even though my balance sheet is positive, and my credit score is average.

Their balance sheet is negative. Their credit rating is in the toilet.

What makes them worthy of a loan from me?

[DemocratSinceBirth]

8. My Credit Is Average To Good

Cit gave me a loan last week to get a $6,000.00 central air/heat pump unit for my home. The unit is new, green, and will make my home cooler while saving energy.

Citi is all right by me.

[KharmaTrain]

5. Are You Prepared To Make The Savers Whole?

That's the shell game here. These insolvent banks are hording the TARP funds and any other money they have to prevent a run on the banks. Remember, there are millions of people who have their savings or other investments in this bank and if the bank goes under, these people not only will be out the money, but a good chance they'll never see any recovered. Would you prefer the government insure all accounts no matter what? IMHO, this is where we're headed, but do we do this in one broad stroke or measure how much to step in? It's questions I'm seeing many batter around...as there are no easy answers to any of these financial messes.

My preference has always been to "Swedenize" the banking system...clean the banks of the bad assets, then sell off the good parts; preferable seeding new, local banks. Once this transfer is done, then let BOA or Citi or whomever crash and burn...their brand names are all but mud now.

[marmar]

6. "My preference has always been to "Swedenize" the banking system"

Agreed. That seems like the most viable solution right now, and perhaps it's underway, stealthily.

[Deja Q]

7. Bad loans, losing jobs, ARMs... many causes.

Banks caused some problems by predatory lending.

Some of the people getting those loans should have known better to.

ARMs didn't help.

Ditto for the sheer number of job losses - how can the banks get paid back if people are losing their jobs and there are none to replace them?