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Bank Nationalization Poised to Begin

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posted on Feb, 23 2009 @ 12:04 AM
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Well, there has been alot of chatter regarding this, and alot of "that will never happen", as well as "that will signal depression era activities".

Guess what, it is poised to begin,...



The U.S. Treasury on Sunday declined comment on reports that Citgroup (C.N) was in talks that could result in the government taking a 40 percent stake in the company, but the department said it was open to converting preferred shares into common equity to strengthen banks.

-snip-

Under the Geithner plan, this includes making sure that there is capital where it is needed, and that public support can be replaced with private capital as soon as that becomes possible, he added.

Earlier, a source familiar with the situation told Reuters that talks were ongoing between Citigroup and regulators that could increase the U.S. government's stake in the once mighty banking giant.

The Wall Street Journal said this could result in a 40 percent common equity stake held by the government, but Citigroup officials were hoping for a stake of around 25 percent.

Reuters




posted on Feb, 23 2009 @ 12:31 AM
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reply to post by smirkley
 


The plan would convert Senior Shares to Common Shares, holding 40% of Common Stock. The money would be converted, and nothing new would be added in..

Not really sure what the point of the conversion is exactly.. I imagine perhaps, to boost the price of common shares? .. I am sure someone else could give a better explanation then my self.

As of right now the US already fully controls Citi through the Senior Preferred Shares.



posted on Feb, 23 2009 @ 01:21 AM
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What I am finding odd is all of the fear mongering that was going on over the thought of even doing this. Now that it is coming into play its a good thing? The markets are reacting in a positive manner, when just a week ago they where in hades over it.?.
Seems to me someone is trying to make the governments "take over" look like the good guys saving the day for a reason. Also what happened with BofA they are in just as bad of shape as Citi but no one is breathing a word of it.



posted on Feb, 23 2009 @ 01:37 AM
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I would hazard a guess that the reason stocks went up (for citi, which I believe is listed on the S&P but im to lazy to check) is that if the Gov bought common stocks, the price per share would increase?

Buying common or preferred shares is no different as far as the definition of Nationalization .. unless 100% of common stocks where controlled.. essentially, the Gov already Nationalized the banks.



posted on Feb, 23 2009 @ 11:45 AM
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First let me post a link to clear up the muck surrounding the difference between common and preferred stock:

Common Stocks vs. Preferred Stocks

Second, here is why it looks good from the banks perspective. Preferred stock demands a set amount of payment over time on top of the fact that its a stock and altars value according to the market. So by converting away from preferred stock, the US government is relieving demand for these payments. A sneaky stimulus if you think about it.

Here is where it gets scary. Upon default, a company's assets are sold off to pay off debts (in the form of bonds), then whats left goes to the preferred stock, and if anything is left (usually isn't) then common stockholders get a per share percentage of their holding. If an alarm doesn't go off at that here's what it can lead to.

Should Citigroup go bankrupt despite all fo the financial aid the government has been pumping in, then the government, being a major holder of common stock, will be pounded by money that just evaporated away. This would stall if not kill further help into the banking industry since no one would have confidence in it. The government, having lost a large chunk of money starts having problems keeping up with its own payments and keeping down the deficit, sending it into a bit of a crisis. That of course is the worst case, but its what people in office don't want you to think about.

*impersonates Obama official* "Hey don't worry about failing, were here to help you with Uncle Pennybags [Monopoly man]."



posted on Feb, 23 2009 @ 12:07 PM
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reply to post by Sir Solomon
 



well stated....
the government held preferred with a 10% annual guaranteed return for as long as the gov't held the stock... they were aiming for 7 years
or less if the banks get back-on-track

with the gov't (representing us tax-payers) converting the preferred
to common, the gpv't is trying to signal to the markets and the population at large that they have a positive outlook in the future recovery of these banks... its all a snow job

its in fact just as Sir Solomon pointed out... the gov't is actually
awarding the bank a slight-of-hand stack of money ->in the form of
the bank not being liable for that 10% payout to preferred stockholders
each quarter or annually.

with the Treasury, holding a 40% stake of common stock, the gov;t either stands to lose the whole 100% of their investment money
(some $25bn already) or else be obliged to buy up even more of the near bankrupt institution so as to maybe salvage some of the total investment--- for at least a little while longer..

all in all, converting to common stock, is a windfall for the bank execs
who will get another quarterly bonus...



posted on Feb, 23 2009 @ 01:26 PM
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I see that the term "nationalization" got redefined with the time. When the government buys stock of a company, it shares the ownership, but the company operation is not directly influenced by the government. The true nationalization, as it occured in the past, is when the government takes over the operation of the company which begin to operate for the purpose to fulfill the needs of the nation with little regard to profit-making. With this type of nationalization of the banks, no mortgage crisis or financial meltdown would ever take place.

Since banks are not lending out enough money, their earnings are not attractive and their stock is losing value. Since banks are the heart of the economy, steps needs to be taken to keep them operating, because the stereotype says that a company cannot function without being able to raise investment money through issuing stock.



posted on Feb, 23 2009 @ 01:39 PM
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Well after "we" buy 40% of Citi group,and probably buy 40% of BoA.Then "we" can buy stock in Chase and a few other banks.Then when things really start getting bad,"we" will just merge all our "bank holdings" into one big massive government controlled bank.

Now won't that be great for competition?



posted on Feb, 23 2009 @ 01:53 PM
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reply to post by St Udio
 


You could look at it from a few angles..

Yes, the Preferred Shares get 10%, while Common Shares get nothing (I believe the US put a restriction on banks issuing Dividends correct?)

But, if we buy up 45 billion worth of Common Shares, hypothetically the share prices would rise.. and seeing as Citi cannot fail (350+billion backstop insurance from Uncle Sam) Citi most likely will ride out the storm we are in. So, again hypothetically, if Citi does survive and it's stock goes from the $4 something that it's at now, back to it's 2007-2008 prices, the US Government is set to make a very good investment.. much more then the 10%.



posted on Feb, 23 2009 @ 02:05 PM
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Originally posted by daddyroo45
Well after "we" buy 40% of Citi group,and probably buy 40% of BoA.Then "we" can buy stock in Chase and a few other banks.Then when things really start getting bad,"we" will just merge all our "bank holdings" into one big massive government controlled bank.

Now won't that be great for competition?


That would be very bad for competition solely fueled by greed with tendencies to find loopholes in banking regulations. Your scenario is very likely to see the daylight, because the government won't sell the purchase stock due to the poor performance of the companies and the merging is a matter of convenience. If one bank is afraid to lend to the other bank due to "toxicity of various assets" floating around, having only one bank solves the problem: Only one bank cannot be afraid of lending, because there are no other banks to lend to.

The financial system will be run the way Shakespeare wrote it.



posted on Feb, 23 2009 @ 02:09 PM
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I am so excited about the Nationalization of Citigroup. The U.S. Government going into direct competition with other smaller U.S. banks and putting them out of business because the U.S. can keep printing more and more money and can pay a higher rate on savings then the other banks.

Unfair advantage absolutely, now foreign banks will have to go to their own countries and ask to be Nationalized to compete on the World market. How do you compete with a Nationalized bank that can give lower interest loans then the competitor and give higher rate of return on savings, you can't. So the vicious cylce continues as the U.S. government helps to put the other banks out of business the U.S. government comes in to save the day by offering to Nationalize all of the banks that are left standing and want to stay in business. Isn't Socialism and Communism great?

[edit on 23-2-2009 by amari]



posted on Feb, 23 2009 @ 02:42 PM
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reply to post by Rockpuck
 


The problem with that is that we are not doing any buying or selling of shares. This is simply a conversion from one type of stock to another. The government is giving up the demand to the payments that preferred stock gets. This theoretically will devalue (in the long term) the value of common stock, since however many shares of preferred stock the government has now is common, increasing the supply, and with so few people demanding, that leads to prices having to go down for equilibrium to take effect.

Sorry for the quick and dirty version of what I was going to say, but I have class in a few minutes.



posted on Feb, 23 2009 @ 03:20 PM
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The collapse of basic reasoning is pretty apparent here:


Still, the regulators suggested keeping banks private is a priority.

"Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption (of the program) is that banks should remain in private hands," the regulators said.

www.msnbc.msn.com...

Who was managing the banks overseeing the invention of various "derivatives" -- theoretical financial math instruments construed with no respect to consequences of market variability and the Federal Reserve total influence on macro economy?



posted on Feb, 23 2009 @ 03:20 PM
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Indexes made new lows today. The S&P and DJIA are at 1997 levels. All the stocks closed at their lows for the day. The DOW will see the 6000's soon enough.



posted on Feb, 23 2009 @ 03:26 PM
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reply to post by St Udio
 


Nationalization is imminent but I wonder if Prince Alwaleed and Abu Dhabi's investment will ask for all their billions of dollars back in the investements they have with citigroup.

That will definetely sink Citigroup to the ground
Can they do that.



posted on Feb, 23 2009 @ 04:17 PM
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The future of the government involving itself the lukewarm way in the market manipulation just became apparent:


We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges," AIG said.

U.S. Treasury officials declined to comment. Weil could not be reached immediately for comment.

AIG shares closed down 1 cent to 53 cents on the New York Stock Exchange.

AIG has already gone to the government twice for help. It was first rescued in September after bad mortgage bets left it on the verge of collapse.


AIG is not needed; their operation doesn't contribute to anything good. Just let them go . . .





[edit on 2/23/2009 by stander]



posted on Feb, 23 2009 @ 09:37 PM
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reply to post by marg6043
 


I had forgotten about that! That changes things somewhat as far as if Citigroup will collapse. If they wake up and think we're going to take away all that money with oil this low, they will crash the stock to make sure they will get something. That will hurt the government as well since everyone will think that because the stock is going down and Citi is then part of the government (thinking that Nationalization has occurred), then that my cascade into the credit rating of the US. That's a bit alarmist I'll admit, and a lot of ifs and maybes. But the chance is there. I wish I had remembered about that before.

Thanks for reminding me!



posted on Feb, 23 2009 @ 09:47 PM
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St. Udio's opinion makes alot of sense to me. Something else I've heard on a more finance oriented board, is that one of the capital ratio's going to be used in the upcoming "stress test" would look better for C if it had more common and less preferred.

Anyway, I don't think that anyone would argue that a 40% stake is defacto nationalization.

Regardless it's just another stopgap to delay the inevitable and save the Banksters/Pigmen at the expense of everyone else.

Nothing I've seen come from either the executive or legislative branches inspires confidence. At this particular point in time, the market appears to agree with me.



posted on Feb, 23 2009 @ 11:11 PM
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Marge:

The Prince holds about 4-5% of Citi Common Shares. Worth quite a bit, but not an exuberant amount. Though, I would still be pissed to loose that much money.. granted.. he's lost much.. much more on many other things since August 2008. The Middle East is essentially in a depression.



posted on Feb, 23 2009 @ 11:46 PM
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So, I am left to wonder aimlessly,..why is this 'mysterious' (double quote) 'minor' buyout attempt at BAC's odd-lots going down the way it is?

I say 'minor', because any major buyout would require SEC involvement, and the way it is being enacted, seems very very covert to me.

Two banks so far,..

Bank of America
Citigroup

Both big dogs in this financial holocaust.

There should be two more puppies in this activity, maybe over the short term, but part of the federal movement to uphold 'security and stability' in the system that is otherwise,...erm,..unstable, to say the least.




edit - fine ....so I cant spell 'financial' without having to edit my post......pffft,...


[edit on 23-2-2009 by smirkley]




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