Citi Endgame Nigh?http://www.nakedcapitalism.com/2009/02/citi-endgame-nigh.htmlWe are back to weekend melodrama, but this one is starting on Sunday night, not a Thursday or Friday. Not good.
Citigroup is apparently throwing itself on the mercy of the court, um, taxpayers, once again, but even the bankster favoring Geithner/Summers team know that the public at large is losing patience with financial firm bailouts in general, and favored treatment towards recidivists like Citigroup in particular. The pound of flesh is about to come due, and there is no Portia in the wings to argue why that would extract more than the contract terms.
The interesting thing is that Citi approached the powers that be (again) yet there does not seem to be any pressing need for a Federal (further) rescue, as in a depositor or counterparty run. Citi merely seems to be wanting to get out in front of the deterioration of its book (the party line is it won't do well in the Treasury stress test, but given the collapse in its stock in the last ten days, one has to wonder).
And that means it must look REALLY ugly.
From the Wall Street Journal:
Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.
While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%,...
The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis...
Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock,...
The move wouldn't cost taxpayers additional money, but other Citigroup shareholders would see their shares diluted...
Bank of America Corp. said Sunday that it isn't discussing a larger ownership stake for the government...
There's no universal agreement on what constitutes nationalization of a bank. In the U.K., the government already owns 43% of Lloyds Banking Group PLC, and last week it moved to increase its ownership of Royal Bank of Scotland Group PLC to 70% from 58%. Those two banks have been classified as "public-sector entities," and as much as £1.5 trillion ($2.136 trillion) of their liabilities have been moved over to the country's balance sheet....
As part of the plan, Citigroup officials hope to persuade private investors that have bought preferred shares -- such as the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority -- to follow the government's lead in converting some of those stakes into common stock, according to people familiar with the matter. That would further bolster an obscure but increasingly pivotal gauge of banks' capital known as "tangible common equity," or TCE.
http://www.nakedcapitalism.com/2009/02/citi-endgame-nigh.html">lots more, with update...
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