Breaking: Gov't 'Officially' Sticking Fork In Citi Today
by bobswern, Thu Feb 26, 2009 at 11:48:49 PM EST
Citigroup Will Be Required by U.S. to Get Private Capital
By Bradley Keoun and Rebecca Christie
Feb. 27 (Bloomberg) -- The Obama administration will require Citigroup Inc. to raise private capital and make changes to its board of directors as part of an effort to strengthen the bank, according to people familiar with the matter.
The plan, which may be announced as soon as today, will involve the Treasury Department converting preferred shares into common stock. The government doesn't immediately intend to provide additional money after channeling $45 billion to the New York-based bank last year, the people said.
The Treasury Department is injecting a fresh round of bailout funds into the nation's banks to help them weather the recession. Regulators on Feb. 25 announced details of "stress tests" to determine how much capital banks will need should unemployment climb to 10.3 percent in 2010.
There are so many problems with this story--many of the kind that will never see the light of day in the MSM--that I almost don't know where to begin:
1.) Returning consumer credit and small business credit to the marketplace? Just the opposite. One of the most central ideas voiced by the Obama administration, with regard to the entirety of the Wall Street Bailout (now pegged to be easily over $5 trillion dollars in nothing less than pissed-away taxpayer funds) was that there was a dire need--and rightly so--to return some semblance of credit to the consumer and small business marketplace. But, the reality is that Citigroup is all about "shedding its businesses," including Citi's primary consumer finance unit, CitiFinancial! So much for returning credit to the marketplace.
2.) A $52 billion dollar bailout of Citi? Try $300 billion-plus, already. The article linked above, tells us something completely different (at least a few are aware of the obfuscated reality that the bailout of Citi, alone, is far more than $45 billion, which is the number quoted in most stories): the Citi bailout is already in the neighborhood of a few hundred billion dollars.
3.) A transparent process? The Federal Reserve System is privately-owned and managed. The Federal Reserve Board is not quite as private, however. It's the Federal Reserve System's privately-owned NY Bank Branch (all the branches are privately owned...by the banks in the respective markets which the branches serve) which is running this show. Most of this effort--like most of the real bailout funds, aren't even coming from the TARP funds, but from special lines of credit, "backstops," and related "guarantees," managed by the Federal Reserve System, which is about as "transparent" as bank vault. There have been many stories posted on these blogs about how Bloomberg and Fox have filed multiple Freedom of Information Act Requests for information about all of this. The Fed's response? Pretty much the official middle finger.
4.) Many of Citi's most valuable assets are in the 100+/- countries where it conducts business. Gov't ownership, just at rates of 10% or more (the government will be acquiring approx. 40% of Citi, if published estimates are accurate), will force Citi to outright lose some of its foreign franchises and/or sell them at fire sale prices. This story ran early Thursday in the Wall Street Journal on the matter: "Citi Confronts Global Fallout as US Nears Deal On Stake."
...a greater U.S. stake will bring a slew of new complications for executives of the New York company.
For example, a Mexican law bars any institution that is more than 10%-owned by a foreign government from running a bank in that country. As a result, some Citigroup executives are worried that an increased U.S. stake might subject the bank to pressure to relinquish some or all of its ownership of Grupo Financiero Banamex, the No. 2 bank in Mexico by assets.
Around the world, Citigroup executives are realizing that the U.S. government's expanded stake could cause headaches. Citigroup operates in more than 100 countries, and executives have been scrambling this week to identify potential problems.
...Citigroup is worried that some governments may deny Citigroup's applications, which could force the company to sell its local units and stop operating in those countries, the people said. Another concern is that foreign governments will drag their feet on granting new charters to local Citigroup units in an attempt to extract concessions from the U.S. government.
5.) These "Stress Tests" we're now hearing so much about are quickly being found out to be little more than pure, unadulterated b.s. The curtain is being pulled back, and it's just a little man pulling the strings on the good ole' spin machine: "Government Offers Details of Bank Stress Test."
There's more ugliness and hypocrisy here, along with mountains and mountains of double-speak and obfuscation coming from Secretary Geithner's and Fed Chair Bernanke's offices, but tonight's reports, especially in the context of other information published over the last 48 hours, tells us, we're taking the long way home. And, this "bailout" is going to cost us far more than all of the other--much more necessary and positive--Obama administration initiatives, combined.
6.) Citi's books are already quite cooked. See: "Citigroup Hides Mystery Meat in Balance Sheet." Their stock's at $2-$3 a share for a reason...and, IMHO, that's way too high.
Once again, Krugman tells it like it is: "Feelings of Despair."
Paul Krugman | New York Times Blog
February 26, 2009, 11:22 am
Feelings of despair
There's so much to like about where Obama is going -- health care, transparency in government, ending the war in Iraq. And the stimulus bill is OK, though not big enough.
But on the question of fixing the banks, many of us are feeling a growing sense of despair.
Obama and Geithner say things like, "If you underestimate the problem; if you do too little, too late; if you don't move aggressively enough; if you are not open and honest in trying to assess the true cost of this; then you will face a deeper, long lasting crisis."
But what they're actually doing is underestimating the problem, doing too little too late, and not being open and honest in trying to assess the true cost. The actual plan seems to be to keep the banks semi-alive by implicitly guaranteeing their liabilities and dribbling in money as necessary, all the while proclaiming that they're adequately capitalized -- and hope that things turn up. It's Japan all over again.
And the result will probably be a deeper, long-lasting crisis.
Tags: bailout, banks, Citigroup, Citigroup CEO Vikram Pandit, depression, Federal Reserve Board Chairman Ben Bernanke, international banking, Recession, U.S. Treasury Secretary Tim Geithner (all tags)