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Venture

Robert Trigaux

Federal bailout, round two, for Citigroup

24

November

Wake up and good morning. Hardly a surprise after last week's drubbing in the stock market, Citigroup Inc. just got a mega-sized federal bailout, a deal to inject $20-billion into the troubled firm and to guarantee hundreds of billions of dollars in risky assets. It had to happen. Citigroup shares closed at a puny $3.77 on Friday and a market value of about $20-billion -- a value that has shriveled from more than $100-billion in a matter of a few weeks.

Hope this bailout works. We seem to have a habit of going back to the rescue trough over and over with these big financial firms. Witness insurance giant AIG, whose name has devolved to Always Insisting on Gimme's from the feds.

But here's the nasty underbelly: How can we gauge the depth of the broader problems when the stream of announcements of ever-growing rescues goes on and on? Drip. drip, drip. A little more and we're all under water. We gasped at the original size of the government bailout: $700-billion. Now the feds are committing (with the guarantees -- don't for get these) at least $300-billion just to Citigroup.

For those interested, here are the terms of the Citigroup bailout. And here's the now perfunctory statement of a big bank CEO, in this case Vikram Pandit of Citigroup, in announcing that it, too, is now owned in part by the U.S. taxpayer:

"This weekend, the U.S. government and Citi worked together in an unprecedented way to address market confidence and the recent decline in Citi's stock price," said Pandit. "We reached an agreement based on an innovative market solution to further strengthen our capital ratios, reduce risk, and increase liquidity. We appreciate the tremendous effort by the government to assure market stability. We are committed to streamlining our business and providing outstanding banking services to our clients around the world. We will continue to focus on opportunities and alternatives to further enhance the company's overall position and value."

Will it work? It better. Citigroup could not stem the bloodletting of its balance sheet on its own. There's a curve ball in all this, however. It's hard to instill fresh confidence in Citigroup when those running the federal bailout increasingly lack credibility. Citigroup may find itself tarred with the same doubts and, like AIG and Oliver Twist, be forced to go back cup in hand: "May I have so more, sir?"

A couple of early comments on the Citi deal here and here worth looking at, as well as this naked capitalism blog posting which points out the Citigroup bailout will lead soon to the GM bailout:

"I do not see how GM can be denied a rescue now (not that that outcome is really in doubt, merely how much pain will be inflicted on management and the UAW)."

Keep in mind. This is not the first but the second bailout infusion for Citigroup. This $20-billion cash injection by the Treasury Department will come from the $700-billion financial bailout package. The capital infusion follows an earlier one -- of $25-billion -- in Citigroup in which the government also received an ownership stake.

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 12:23pm]

    

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