Report: Citigroup weighs potential sale, page 1

Report: Citigroup weighs potential sale

www.bizjournals.com

Citgroup executives, faced with a plunging share price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, the Wall Street Journal reported late Thursday, citing people familiar with the situation.

(visit the link for the full news article)


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[edit on 11/20/2008 by anachryon]

Well, Citi's come out and said they have "ample capital." That's a death knell for banks. They're broke. Done.

CNBC is reporting that some sort of deal has to happen in "the next few days" and that Morgan Stanley is not interested in acquiring Citigroup. That leaves Goldman Sachs as the most likely candidate.

I never thought I'd see Citi in this position. It wasn't too long ago that they were in the position to buy Wachovia; now they appear to be on the selling block themselves.

www.bizjournals.com
(visit the link for the full news article)

Citi closed down 20% today at $3.77 a share, a 16 year low. Over one billion shares of C stock was bought or sold; this is incredibly huge volume.

A year ago their market cap was approx $180B.
Today it's barely $20B.

The WSJ is reporting that Citi is now seeking another capital injection from the Fed or the Treasury. They recently received $25B as part of the TARP bailout.

It's looking more and more likely that Citi will either have to sell off bits and pieces, merge with another bank, or get bailed out by the gov't.

This is giving me serious Lehman flashbacks.

Lots and lots of Citi rumors this weekend.

An interesting bit from CNBC
Initial reports came in as:

The government is looking to buy a substantial amount of assets from Citi, similar to a good bank, bad bank structure. The government would absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government. The deal is not finalized but could be announced tonight.

Then followed by:

Sources with knowledge of a deal for the government to buy troubled assets from Citigroup say officials are now getting cold feet over the plan.
The situation is still fluid and people close to Citigroup say some sort of a deal will likely be worked out Sunday evening. One other option being considered now, is for the government to put money into Citigroup.

HOWEVER - then there's this note:

White House spokeswoman Dana Perino said on Sunday she knew of no talks going on between banking giant Citigroup and the federal government for financial aid.

Wonder what's going on there, hmmmm? A clue might come courtesy of Bloomberg

The Federal Reserve and Treasury Department were locked in discussions with Citigroup and other regulators throughout the weekend and a deal may be reached as soon as today, according to the people, who declined to be identified because the negotiations are confidential. The assets would remain at Citigroup, with the government agreeing to assume losses beyond a specified amount, two of the people said.

Is Bush being left out of the discussions?


I've been hearing rumors that Citi could be seized either this weekend or before the Thanksgiving holiday. The possibility remains open, but Citi hasn't experienced a "bank run" at this point, so in theory they should have enough capital on hand. A seizure before market open Monday, in my opinion, is unlikely. If the company's stock value continues to plummet and if depositors start taking their money & running, a seizure becomes more likely.


Relevant tidbits about Citigroup, data courtesy of Money and Markets newsletter:
$2 trillion in assets: That’s three times more than Wachovia and six times more than Washington Mutual.

Derivative time bombs worth a staggering $37.1 trillion: Its derivative holdings are eight times greater than what Wachovia had when it fell apart.

$202 billion in troubled residential mortgages — twice as many are now 90 days or more past due than last year.

Thousands of dead and dying auto loans — defaults have just soared 41%.

WSJ

The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.

Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection -- 8% for the first few years -- than it has charged to dozens of other banks now borrowing money under the government's the $700 billion rescue package approved by Congress last month.

In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.

Guaranteeing $300BILLION in bad assets.

reply to post by anachryon

---

We are now mid way along the great unravel. The US banking system is out of money. The Fed has less than zero non-borrowed assets (think about that...seriously). We're probably 1/2 of the way to bottom. There will be many other financial co.s, in the near future, that lay down for the eternal dirt nap. DOW at 2500, S&P 500 at 250 by March '09. Ford, GM, and Chrysler won't look anything like they do now (if they survive). The whole world will look and feel very different than it does now. The wheels are flying off the Ponzi scheme.

I'm not a finance guy, I got a very painful real life education. I have since started reading many financial blogs and websites. If you haven't already, I recommend reading the Market Oracle, karl Denninger, Mish Shedlock, and most things that Nouriel Roubinni has to say. Some of these wet-blanket realists have been calling this mess for 10 years.

Keep your money in the mattress and try not to let the bastards get you down.

Peace, Gram

I'm most disturbed by the statement from Perino saying that the White House wasn't aware of any talks with Citi.

Seriously, think about it. That news story was posted by Reuters this afternoon. Either Ms. Perino lied, or the White House had no idea that Citi was about to be given a $300B bailout! This seems to be a tri-lateral effort by the Fed, the Treasury, and the FDIC; have they decided to just say "screw it" and do what they want without input from the President, Congress, etc??

EDIT:
FDIC

Washington, DC— The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access and capital.

As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program.

Be sure to read the PDF linked at the bottom.

[edit on 11/24/2008 by anachryon]

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