Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Government Moves Into Citi?


Common shareholders could get taken out to the woodshed... again.

It may not be nationalization, but it's pretty close.

Last night, the Wall Street Journal reported the federal government is considering taking a large step closer to outright control of Citigroup (C). Having already sunk tens of billions of dollars into the troubled bank, the Treasury Department may now convert its non-voting preferred stock into Citgroup common stock. This would give government officials voting rights and more control over management's decisions. The Journal reports the government could own as much as 40% of the company, although bank executives are hoping the stake will come out closer to 25%.

And while taxpayers wouldn't be asked to pump in additional funds, the move would further dilute current shareholders. But there isn't much left to dilute: The company's shares traded below $2 Friday, and were off more than 50% as recently as February 10.

Reeling from credit losses and worsening economic conditions in the US and abroad, Citigroup is at the leading edge of the financial storm. And nervous politicians are taking a more active role in bank management, concerned that capital injections, debt guarantees and loss-sharing agreements may not be sufficient to allow banks to retain their independence.

The Obama administration did say on Friday, however, that nationalization isn't in the cards for Citi and Bank of America (BAC). Nevertheless, nationalization calls are being heard loudly across the globe. Politicians, academics and pundits are weighing in, many arguing state control is the system's only hope to survive.

Banks, for their part, claim they don't need the help: They claim that fear, rather than fundamentals, are driving their shares into the ground. In addition to Bank of America CEO Ken Lewis, JPMorgan (JPM) chief Jamie Dimon and Wells Fargo (WFC) CEO John Stumpf have asserted that their institutions are solvent enough to go it alone.

In his public remarks on Friday, Stumpf even managed to sound upbeat about the future. "There is so much to look forward to. I don't know what we're going through today, but it will probably define our generation. This can be the next greatest generation."

Indeed. As Toddo often says, "In order to get through this, we need to go through it." And with stress tests on tap for the nation's biggest banks, we may soon find out just how much we'll have to go through to get to the other side.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos