Citi in talks with Feds to increase gov't stake

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machinehead's picture
machinehead
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Posts: 1077
Citi in talks with Feds to increase gov't stake

From Marketwatch and WSJ --

SAN FRANCISCO (MarketWatch) -- Citigroup Inc.

is in talks with federal officials for the U.S. government to expand
its ownership of the bank, according to a report in the online edition
of the Wall Street Journal, citing people familiar with the situation.
The report said that while the talks could still fall apart,
discussions center on the government ending up with as much as 40% of
Citigroup's common stock. Bank executives hope the stake will be closer
to 25%, the Journal reported its sources have said. The proposal was
made by Citigroup to its regulators, according to the report, which
also noted the Obama administration hasn't indicated if it supports the
plan.

Boy, does this irk me. As of Friday, when Citi stock closed under
$2.00 a share, its entire market cap was around $10 billion. This comes
after Usgov 'invested' tens of billions in preferred stock and loan
guarantees -- suggesting that it's already stupidly, fecklessly lost 90
percent of its 'investment' in a matter of weeks, by dumping money into
an insolvent institution.

Why, why, would Usgov not just buy the outstanding shares for $10
billion and take full control ... as opposed to futzing around with
retaining a tiny stub of public ownership, which may require tens of
billions more in open-ended subsidies -- some of which will benefit
shareholders at the expense of taxpayers?

Sorry, but I don't see this travesty as merely bad judgment. It smacks
of undue influence and corruption. This braindead, failed bank needs to
be fully taken over, and liquidated at leisure.

machinehead's picture
machinehead
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Posts: 1077
Re: Citi in talks with Feds to increase gov't stake

More details from the WSJ article --

Under the scenario being considered, a substantial chunk of the
$45
billion in preferred shares held by the government would convert into
common stock, people familiar with the matter said. The government
obtained those shares, equivalent to a 7.8% stake, in return for
pumping capital into Citigroup.The move wouldn't cost taxpayers
additional money, but other Citigroup shareholders would see their
shares diluted.

Details of the rescue remain in flux. Key questions, such as the price
at which the government will convert its preferred stock into common
shares, haven't been resolved.

If the deal gets nailed down, it will be Washington's third effort
to aid Citigroup since last fall. In October, the Treasury Department
put a total of $125 billion into eight giant financial institutions,
including $25 billion to Citigroup, in exchange for preferred shares
and warrants to buy stock.

Then, shortly before Thanksgiving, the government agreed to infuse
another $20 billion into Citigroup as its stock tumbled. It also agreed
to protect the banking company against most losses on a $301 billion
pool of assets.

http://online.wsj.com/article/SB123535148618845005.html

So Usgov has injected $45 billion of capital in Citigroup, plus $301
billion in loan guarantees which are hard to value, but surely are worth tens
of billions more -- let's say another $45 billion, on the conservative
assumption that about 15 percent of those guaranteed assets are
worthless crap. That makes an estimated $90 billion net public investment.
Now the market values the entire bank at only $10 billion, which is not
significantly different than zero for an asset base this large.

Way to go, Hank and Timmy. Flushed $80 billion down the toilet, on
one bank, since October. Not just any idiots could have accomplished
that. Now, astonishingly, the banksters have the hubris to propose that
the government remain a minority shareholder after converting its preferred stock to common?

It's a very good thing that I wasn't present to hear this
impertinence. Because I would have leaped up, overturned the conference
table onto the bankster clowns, and probably urinated on them as they
thrashed about on the floor. 'Hasta la vista, suckers,' I'd announce, stuffing a hundred-dollar bill into the whimpering Pandit's mouth before stalking out the room.

joemanc's picture
joemanc
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Posts: 834
Re: Citi in talks with Feds to increase gov't stake

Shut the bank down, sell off the deposits to healthy banks(do we even have any?) and liquidate the debts.

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Citi in talks with Feds to increase gov't stake

Roubini says 'nationalize 'em,' and so do I --

An idea [Nouriel Roubini] floated only last week -- that our "zombie banks" be temporarily nationalized -- aired first on Forbes.com,
where he writes a weekly column. It has evolved, in the space of just a
few days, from radical solution to almost received wisdom.

Mr. Roubini tells me that bank nationalization "is something the
partisans would have regarded as anathema a few weeks ago. But when I
and others put it in the context of the Swedish approach [of the 1990s]
-- i.e. you take banks over, you clean them up, and you sell them in
rapid order to the private sector -- it's clear that it's temporary. No
one's in favor of a permanent government takeover of the financial
system."

There's another reason why the concept should appeal to
(fiscal) conservatives, he explains. "The idea that government will
fork out trillions of dollars to try to rescue financial institutions,
and throw more money after bad dollars, is not appealing because then
the fiscal cost is much larger. So rather than being seen as something
Bolshevik, nationalization is seen as pragmatic. Paradoxically, the
proposal is more market-friendly than the alternative of zombie banks."

http://online.wsj.com/article/SB123535148618845005.html

Roubini also points out that these gigantic financial supermarkets,
conglomerated together after the Glass-Steagall Act was repealed, would
best be broken into simpler, plain-vanilla pieces for
liquidation.That's exactly right. Nobody can analyze these huge
hodgepodges. A quasi-Chaper 7 process is needed to bust them up, sell
the good pieces, close the bad pieces, and tot up the bill.

Temporizing with silly proposals to maintain the government as a minority shareholder amount to nothing more than ordering the Titanic band strike up a jaunty waltz tune as the lifeboats are lowered. We are not fooled.

joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
Re: Citi in talks with Feds to increase gov't stake

mschinehead

you have to remember that sec of treas is a rubin acolyte.

geithner was appointed by that decent, nice, poor, fellow who happens to be 

the current captain of the titanic. you remember dont you he was

chosen by the banksters on wall street ie. the crew of the titanic.

so not to worry.  unless of course you happen to be way down in the bowels of the ship

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Citi in talks with Feds to increase gov't stake

Please, Joe. Tim Geithner is our first Vulcan-American Treasury
secretary. His bulbous cranium signifies superior intelligence. His
extravagantly pointed ears indicate the same dispassionate judgment for
which his fellow Vulcan, Mr. Spock, was so justly renowned.

Let's give the man a chance. Maybe Vulcan capital will bail us out.

Otherwise, beam me up. There's no money on this planet. Money mouth

Thomas Hedin's picture
Thomas Hedin
Status: Platinum Member (Offline)
Joined: Jan 28 2009
Posts: 815
Re: Citi in talks with Feds to increase gov't stake

At the end of this video you'll understand why these big banks are probably wanting to increase the governments liability so much.  It's really sad, but in order to understand you'll have to watch both videos from front to back.

 part 1 (watch in full screen HD)

 part 2 (watch in full screen HD)

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