Citi's 'slow, grudging nationalization

Image via WikipediaCan Citigroup survive? - Nov. 24, 2008: "Citi's 'slow, grudging nationalization'

Monday's massive rescue package hasn't solved Citigroup's problems, says bank analyst Christopher Whalen.

(from Fortune Magazine) -- In just a few days Citigroup went from trouble to trauma as its stock price plunged amid sweeping layoffs and deep losses on some of its more esoteric assets. When news reports swirled that the megabank was considering a sale of part or all of the company, it was clear that Citi was singing from the same hymnbook as firms like Lehman Brothers, Wachovia and AIG had before they fell. The public's only question: What would the end game look like?

Now we have our answer - a government agreement to shoulder hundreds of billions of dollars in possible losses and inject billions of dollars into the bank. FORTUNE checked in with bank analyst Christopher Whalen, co-founder of Institutional Risk Analytics and a prescient critic of Citigroup (C, Fortune 500) since 2003, when he said its riskier, higher-return strategy made it more vulnerable than its banking peers.

Here are some excerpts. This one is well worth a read of the full article.

Fortune:

Does this plan solve Citi's problems?

Whalen: This does nothing more than temper the problem, but, no, it hasn't solved anything.

Fortune:

How does this rescue plan differ from the other bailouts we've seen in the past few months?

Whalen: The accurate term for what the government has done is "open bank assistance." It's similar to what the FDIC had to do when it was clear that Wachovia could no longer go on, except there is not a ready buyer in this case. The other big financial institutions have had parties willing to pick up the assets, but you won't see that with Citi. This bailout is more like a resolution. That means that the government essentially has to take control of Citicorp and become more and more involved with its operations until the bank ultimately is nationalized.

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Goldman to Sell Bonds in First FDIC-Backed Offering

Image via WikipediaBloomberg.com: U.S.

By John Detrixhe and Gabrielle Coppola

Nov. 24 (Bloomberg) -- Goldman Sachs Group Inc., the biggest U.S. securities firm to convert to a bank, plans to sell notes in the first offering of debt backed by the Federal Deposit Insurance Corp., according to a person with knowledge of the transaction.

Goldman is leading banks in what analysts said may be a wave of as much as $600 billion of government-guaranteed issuance. Goldman’s benchmark sale may price as soon as tomorrow, said the person, who declined to be identified because terms aren’t set. Benchmark size typically means at least $500 million.

The government guarantee opens a new channel for bank funding after the credit seizure sapped demand for financial debt and sent yields to record highs of 7.24 percentage points above Treasuries. Banks, which haven’t sold dollar-denominated bonds since September, may raise $400 billion to $600 billion under the program within six months, Barclays Capital estimated in October."

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Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "Oct. 3 (Bloomberg) -- When Sheila Bair took over as head of the U.S. Federal Deposit Insurance Corp. in 2006, the agency was probably better known for the ``FDIC'' logo on the doors of the nation's banks than for anything it did.

Now Bair is at the center of the financial crisis, speeding the takeover of failing banks and pressing the mortgage industry to ease loan terms. And she's vaulted from the leadership of a once-sleepy regulator into the league of Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, winning praise from Democrats and Republicans.

``She has more power because of the situation on the ground,'' said Senator Charles Schumer, a New York Democrat. ``No one is going to put handcuffs on her.''

``She's going to be Treasury secretary someday,'' said Tim Adams, a former department undersecretary under President George W. Bush who worked with Bair when she was an assistant secretary.

In just the last week, Bair, 54, invoked never-before-used authority to avert a financial-system breakdown by brokering a deal for Citigroup Inc.'s to buy Wachovia Corp.'s banking operations. She seized Washington Mutual Inc. and sold it to JPMorgan Chase & Co. and convinced the Senate to temporarily increase the FDIC's insurance of individual bank deposits -- a move Paulson opposed."

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Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "`Destroyed the Market'

To be sure, she has angered investors. Some Wachovia shareholders blame her for wiping them out when she helped engineer the sale and warn that other banks will suffer for it.

``That destroyed the market,'' said Peter Kovalski, senior portfolio manager at Alpine Woods Capital Investors LLC. ``Taking over a healthy, well-capitalized bank, the way they did, now investors are not going to be willing to invest in any bank.''"

Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "Making a Point

When Bair found herself in control of IndyMac in July, she used the bank to make her point. She suspended foreclosures on $15 billion worth of mortgages and sought to work out deals for the 60,000 borrowers who were behind in payments.

``My hope is that the program for IndyMac Federal Bank will be a catalyst for others across the country to modify their loans more rapidly and systematically,'' she told lawmakers at a hearing last month."

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