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Ear to the Ground

Citigroup Wants a Bigger Bailout

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Posted on Feb 22, 2009
Flickr / stan

It’s garbage time for Citigroup, which led the charge through both the banking boom and the financial meltdown.

Uncle Sam already gave Citigroup $45 billion and promised to limit the bank’s losses on $300 billion in troubled loans, but executives at the ailing bank are now reportedly asking the federal government to sweeten the deal. One scheme has Washington exchanging preferred stock for common stock. That might help the bank attract more investors and reduce the taxpayers’ chances of ever getting their money back.

Washington Post:

Citigroup executives have approached federal regulators to discuss steps the government could take to strengthen the troubled company, according to two people familiar with the matter.

The giant New York bank is under mounting pressure to convince investors that it can survive its financial problems. The government already has invested $45 billion in Citigroup and promised to limit its losses on a portfolio of more than $300 billion of loans and other troubled assets. But investors remain nonplussed, and the company’s stock price has dropped 71 percent this year.

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By Justin cards, February 24, 2009 at 4:24 am Link to this comment
(Unregistered commenter)

Citigroup’s intention for a bigger bailout may seem inappropriate especially to the investors, wherein their preferred stock will be changed to common stock. Obviously, investors invest to gain profit and not loss. In spite of this, the government who already invested has the capacity to strengthen the company’s struggling situation.

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By mjt01, February 23, 2009 at 4:47 pm Link to this comment

The current market capitalization for Citibank is running about 11-12 billion dollars. That is what the whole company is worth if the stockholders are lucky. We have already put 45 billion dollars into Citibank, and promised to assist in dealing with some 300 billion in possibly bad loans.

I figure that we have already spent enough to buy Citibank around four times over, without considering the liability for the bad loans. Now Citibank wants even more without any significant conditions or payback in sight. I can’t even call this sending good money after bad. It is flat out insane.

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By Louise, February 23, 2009 at 3:35 pm Link to this comment

Bisbonian,

Your experience is proof of the downside of too much bank “product” and too little hands on oversight. May not offer any comfort, but what’s happened to you has happened to many!

Citigroups self description of services as “product” gives a clear indication of what’s happened in the banking industry in general.

Their “financial supermarket” approach to banking, insurance, investment, credit, finance and all related financial entities is probably the biggest single cause of their eventual demise. With every acquisition over the years, the level of obligation has increased exponentially with the level of profit potential. And the level of hands on control of each and every transaction, particularly in the real estate market has been eliminated and lost.

The “financial supermarket” approach coupled with bad investment speculation, and/or profit loss behavior, that led to various banking and insurance entities falling in value enough to make it possible for them to be acquired by, or merge into citigroups growing “market”, guaranteed an increase in risk. Risk came, followed by more reckless speculation, followed by more acquisition, and merge. All related arms of the growing monster we now call Citigroup.

Walking backwards there are plenty of CEO’s, managers and officers to blame. If nothing more, following a thorough investigation, they should all lose their licenses. Possibly have some of their assets attached as collateral against the huge losses they’ve created for their investors. That costs legal time and money, and we need action now, not after we have punished all the bad guys. But we need to make sure there’s room made on the Justice Departments already overflowing plate to see that happens.

There’s a lot of talk demanding we nationalize the failing banks. In truth, this actually happens all the time in the USA. Every bank failure is a case of bank nationalization. The FDIC steps in, takes control, and sells the bank to another bank over the weekend. So far in 2009 it’s happened 14 times!

I think the thing holding up nationalization of Citigroup is the shear size and volume! Most failed banks are cleaned up and sold over the weekend. However, a large scale takeover would require more time. The government would ‘own’ the bank until it could sell off assets. Citigroup is not to big to fail, we sure know that by now. In fact, Citigroup is to big to NOT fail. So the question is do we want the burden [and cost] of managing and selling off it’s assets?

Shall we keep propping up these giants until they’re dead, or do we start chopping them up now, hoping the various pieces might survive?

At this point I have to say, I’m sure glad it’s Obama wrestling with this quandary and not me, because I don’t know what’s the best thing to do. The only thing I know for sure is doing nothing usually results in getting nothing done.

Which brings us back to how did this happen? Try the Gramm-Leach-Bliley Act of 1999 on for size!

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By Ralph, February 23, 2009 at 2:49 pm Link to this comment
(Unregistered commenter)

This would move taxpapers’ current investment further down the capital structure, i.e., in the case of a bankruptcy (a real risk), taxpayers would be the last to get paid from a sale of Citi’s assets.  Given Citi’s market cap of $12 billion, the government’s current $45 billion investment represents a de facto takeover already.  It is also unclear of what additional benefits taxpayers are receiving by converting its preferred stock.  It may be more prudent to (i) keep the preferred shares, and (ii) lower the preferred coupon payment (assuming this is an impediment to Citi’s “going concern” status).  This way, in case of a Citi bankruptcy taxpayers will have a higher claim on Citi’s assets than common shareholders.  To learn more go to http://www.newyorkshockexchange.com

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By Dan D., February 23, 2009 at 11:34 am Link to this comment
(Unregistered commenter)

Are we doing a good thing for the economy by trying to stabilize companies that are headed out of business because of their entanglement with the market and the number of jobs of that stand to be lost? 

Are we postponing the inevitable?  What if these companies go out of business despite the fact that the government has given billions of dollars in an effort to keep the companies going out of business?  Where will be then if the government loses billions and all the jobs the government were trying to save are gone any way? 

http://www.weeklypoint.com/2009/02/23/us-may-invest-more-in-citigroup-bank/

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By P. T., February 23, 2009 at 10:30 am Link to this comment

There will be no recovery until Obama quits stalling on nationalizing the insolvent banks.

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By Eric L. Prentis, February 23, 2009 at 10:09 am Link to this comment

Citigroup, no more help for these losers, let zombie banks die.

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By godistwaddle, February 23, 2009 at 10:07 am Link to this comment

Want banking reform? 1. Obtain rope. 2. Obtain several bankers. 3. Hang bankers. 4. Post video on Youtube. 5. Observe and monitor banking reform. 6. Repeat as necessary.

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By Bisbonian, February 23, 2009 at 9:57 am Link to this comment
(Unregistered commenter)

CitiMortgage bought my mortgage soon after closing (I never would have done business with them otherwise).  Last July, I guess I wrote the dollar amount on my check a little too sloppily.  They sent it back, saying the number amount did not match the written out amount.  So I wrote them another check.

The next month I sent them the next check.  A couple weeks later, I got a note from them that I was two months in arrears, and in danger of foreclosure.  What?!? I had sent them the last two months worth.  No, they said, the first one was late, which generated a late fee.  When I re-wrote the check, it was for the original amount, and since it didn’t include the late fee, then it wasn’t credited toward my account.  They put it in an “escrow account”.  The next month also didn’t include a late fee, same deal.  So now they said I hadn’t paid for two months.

Much screaming and yelling at the phone later, it was all straightened out.  I sent the next check a few days early, just to make sure.  Big mistake.  Unknown to me, it wasn’t due yet, so they put it in an escrow account.  The next month I sent another check, but since I was in arrears, there was a late fee, and now the check wasn’t for the right amount, so it went into an escrow fee.  And I got the “in danger of default” note again.

I finally told them, “Look, the loan amount is for this…but now the house is only worth that.  I’m upside down.  It would be in my interest to just walk away right now.  Is that what you want?  To be saddled with yet another house in a falling market?  Reluctantly, they straightened everything out again, and waived all the fees.

Citi can die, and rot, for all I care.  Good riddance to them.

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By SteveK9, February 23, 2009 at 9:16 am Link to this comment

Put the bank into receivership under the FDIC, wipe out shareholders, fire all executives.

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By joe, February 23, 2009 at 9:00 am Link to this comment
(Unregistered commenter)

the only think these crooked ceos should get is a rope around thier neck.

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By reason, February 23, 2009 at 8:16 am Link to this comment

Not one dollar more; these are the same banking CEO’s and investment brokers who made the decisions that brought us to this economic mess. It is time that the opportunistic blackmailers be held accountable for their crimes of greed. Citi Group is the kind of corporation that brought us to the edge of a depression that could start something that none of us want to imagine. The past behavior of this companies officers was and is self serving to the point of being totally unethical and their only regret is that it is now commmon knowledge of the people of the world.  How can anyone believe these same companies and their officers, seek the best interests of our country or the world as the highest goal?  There is little discussion of what is going to happen when the credit card divisions of the banks start to fold as they are bound to do. Again, they believe the general public to be idiots and respond to the “dried up old carrot” they have been using to stimulate suckers in the past. The idea that the ordinary person should spend their incomes and savings to save a phoney economy that did little to make the ordinary citizen secure is beyond arrogant. There is no doubt that we will all suffer the consequences of this recession but again opportunist, entrepanuerial bankers and brokers will try to make a case that the recession is the fault of the poor and middle class and believe “business as usual” should be their right.

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