re Citigroup Talks But Nothing "Walks" To Stabilize Firm
In my opinion, it is best to merge with other bank considering banking crisis which we are in. It will be cost-efficient to merge as it will cut down operating costs as well.
By the way, the CEO who was active with repealing the Glass-Steagall act retired right before the banking crisis.
Posted By: Charlie Gasparino | On-Air Editor Reuters | 22 Nov 2008 | 04:25 PM ET
Officials from Citigroup and government officials continue to discuss ways to stabilize the company's stock price over the weekend but have yet to come up with a plan to install confidence into the firm that has seen its shares battered into penny-stock territory and raising the prospect of a government bailout, people close to the firm say.
As of Saturday afternoon, the general consensus between officials from Citi and government officials from the US Treasury department and US Federal Reserve is that the government will not takeover Citigroup in the way it took control of AIG—by lending the firm massive amounts of money and in return assuming a huge equity position.
Government officials fear taking over Citigroup would create a precedent: Unlike AIG, Citigroup's balance sheet is relatively healthy, with relatively strong levels of capital particularly compared to most of its competitors.
Still, officials from the Treasury and Citigroup are unsure what it would take to restore confidence in the company, including a possible smaller capital injection or some sort of statement that Citigroup is financially sound.
For that reason, Citigroup officials are continuing to explore possible merger possibilities and a spin off of some of Citigroup's businesses, even as CEP Vikram Pandit publicly stated the sale of the firm's massive and coveted broker business, Smith Barney is off the table, these people say.
Both officials at Citigroup and in the government concede the situation facing Citigoup is daunting. Because of Citigroup's size and scope—it operates in just about every country and competes in just about every financial business, the company's survival is a national concern. Citigroup has spent the past week telling investors that its capital position is strong, but investors have lost confidence in the current management led by CEO Vikram Pandit who has been in the job less than a year, and the firm's board, which appeared to ignore widespread calls by analysts to integrate the firms operations and slash its massive workforce until recently.
Meanwhile, various merger possibilities seem slim. A deal with investment banks Morgan Stanley or Goldman Sachs would create massive overlap and would lead to huge layoffs. There aren't many banks with a strong deposit base that Citigroup can buy with its depressed stock price.
Pandit, for his part, has cut the workforce to 350,000 from 375,000 and just announced another 50,000-job cut by early 2009. But for investors, those moves were too little too late. Nearly a year ago, Citigroup's share traded at around $50. On Friday they traded at $3.77 and failed to rebound even as the Dow Jones Industrial Average of large company stocks spiked nearly 500 points on the news that President-elect Barack Obama will name NY Fed President Tim Geithner as his new Treasury Secretary. Citigroup's Ills May Signal Market Isn't Near Bottom
Because Citigroup is a bank it has access the the Federal Reserves discount window, and because of its size, there is virtually no possibility of the bank failing and filing for bankruptcy as investment bank Lehman Brothers did. "Citigroup is too big to fail; the government wont allow that because the firm is involves in so many business both institutional and consumer around the world," said one bond trader with detailed knowledge of Citigroup's operations. Investor fear remains deep despite one-day rally
But the lack of confidence coupled by the falling stock price could pose other problems, such as a run on bank deposits, where worried depositors yank their money from their Citigroup accounts, or investors pulling their funds from their Smith Barney brokerage accounts. A Citigroup spokesman declined to say if the company is experiencing either of those scenarios.
For that reason, Citigroup officials are continuing to work over the weekend to possibly unveil some sort of plan of action by Monday morning. But as of Saturday afternoon, there was no clear consensus on what that plan would be, raising the possibility that firm officials might have to roll the dice and attempt to ride out the current panic selling in the firm's stock. "Everyone knows saving Citigroup is important to saving the economy, but no one knows what to do," said one person close to the firm. Obama Warns On Economy: Works On Stimulus Plan Copyright 2008 Reuters. Click for restrictions.
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