US Takes a $20 Billion Stake and Guarantees $306 Billion of Risky Loans for Citigroup

And the hits just keep on coming.

International Herald Tribune
U.S. to inject $20 billion into Citigroup
The Associated Press
Sunday, November 23, 2008

WASHINGTON: The U.S. government unveiled a plan Sunday to rescue Citigroup, including taking a $20 billion stake in the firm, whose stock has been hammered on worries about its financial health.

In addition, the government will guarantee as much as $306 billion of risky loans and securities backed by commercial and residential mortgages.

The announcement was made by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp.

Citigroup in Emergency Talks with Government for Cash

Here we are, behind financial lines, huddled over our shortwave radios, waiting to hear about the true state of of our economy from the BBC... LOL.

BBC News
Citigroup seeks 'emergency cash'
15:54 GMT, Sunday, 23 November 2008

Executives of Citigroup, one of the biggest banks in the US, are in emergency talks with the US Treasury to gain much-needed funding, reports say.

The bank is also said to have contacted certain shareholders to assess their interest in increasing their stakes as as it faces an uncertain future.

Citigroup stock ended 20% lower on Friday as its board members met.

Last week the company announced 52,000 job losses worldwide on top of 23,000 job cuts previously announced.

No one from Citigroup was immediately available for comment.

There are fears that without further funding the bank might not be able to survive. Any money would be in addition to the $25bn injection it received in October from the US Treasury.

Options being discussed included a government cash injection as well as Citigroup selling some of its business, reported The Sunday Times. (Remember you heard about all of this here first - Jesse)

Chief executive Vikram Pandit told employees on Friday that the firm did not want to change its business model, Reuters reported, citing two employees.

He also reiterated that the firm had a robust capital position. (That seems to be financial CEO-speak for "we are on the brink, mates, and its been good to know you "- Jesse)

But Sean Egan, analyst at ratings agency Egan-Jones Ratings, said, "Citigroup needs a deep-pocketed investor that is ready, willing, and able to step up in the next few days." (Prince Alwaleed has a hole in his pocket? - Jesse)

"The only one who comes to mind is the government," he said, adding that $50bn might ne needed. (ROFLMAO, you can't make this stuff up. Hmmm, I'm thinking of a bigger fool, and a bigger number.... - Jesse)

In a bid to reassure investors, Citigroup is running advertisements in US and international newspapers on Sunday underlining its stability. (NY global bank with gaping holes in balance sheet desparately seeking a deep-pocketed investor 'just in case' we wish to re-open on Monday - Jesse)

It is widely expected that Citigroup will issue a statement on Monday before the US markets open. (They just said they had a robust cash position and that everything was fine. What are they going to say now, that they expect a cash surge from the Bush Administration to turn the tide? - Jesse)

This Bear Market Is One for the Record Books Part II

Here is a chart of the major bear markets since 1900 that shows the impact of the Great Crash of 1929 as a solitary event, and then again as the prelude included in the bear market of the Great Depression of 1929 - 1932.

We were bothered a little on the first version of this chart that the Great Crash did not show its full impact. Imagine the decline we have seen over the past year, but with more intensity, occurring in less than two months!




Special thanks to our friend Elvis_Knows for the chart update, and for all his many contributions and charts over the past year.

Robert Rubin's Role in the Bubble that Broke the World

Is it premature to speak of the failure of Citigroup?

No, the bank is finished. The only question is the nature of its post-death life as a zombie.

The Fed and FDIC may cut off a few of the more gangrenous pieces, stuff it full of paper, bolt on a prosthetic or two, perhaps apply enough cosmetics to give it some semblance of an afterlife, but the hard fact is the bank has collapsed, and would not open its doors again without extraordinary measures to maintain the appearance of existence.

How did this happen? Although this article does not mention the chief architect, Sanford Weil and another member of the supporting cast Larry Summers, it does pay tribute to Robert Rubin who, with Alan Greenspan, helped to create one of the greatest financial bubbles in history.

The New York Times
Citigroup Pays for a Rush to Risk
November 22, 2008

...The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser.

Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.

When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.

And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another.

Citigroup was ensnared in murky financial dealings with the defunct energy company Enron, which drew the attention of federal investigators; it was criticized by law enforcement officials for the role one of its prominent research analysts played during the telecom bubble several years ago; and it found itself in the middle of regulatory violations in Britain and Japan....As it built up that business, it used accounting maneuvers to move billions of dollars of the troubled assets off its books, freeing capital so the bank could grow even larger....

Does a Weakness in Banking Regulations Result in Economic Imbalances and Asset Bubbles?

PBS Frontline: Mr. Weill Goes to Washington


Time Magazine February 15, 1999