Thursday, November 20, 2008

Citi's fate?

As Citigroup's share price sinks, investors are wondering if the US government will have to help the bank. Some ideas thrown out in a recent Fox Business article.

  • More preferred shares - rinse and repeat until the federal government owns all of Citi
  • A loan with ownership stake as was done with AIG - Would wipe out most of the earlier $25 billion investment in preferred shares, plus it would hurt investors in Citigroup's bonds as well as bank bonds in general which would make it harder for some banks to fund themselves
  • Guarantee all of Citigroup's debt and derivative obligations
  • Buy Citigroup's worst assets perhaps at a discount and allow an asset manager such as BlackRock to manage them for taxpayers - isn't that what TARP was supposed to do in the first place?
  • Instituting a new short-selling ban, loosening mark-to-market accounting rules for bank assets, or halting trading in credit default swaps - too brilliant for words
  • FDIC liquidation - This is a little like saving the patient from cancer by shooting him in the head with a bazooka, but may be the best option at this point. Too big too fail, my butt.

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