Reidblog [The Reid Report blog]

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Monday, November 24, 2008
Saving Citi
The bank that no one knew was failing lost half its stock value last week, and with $800 billion in deposits, and a heap of mortgages and other assets in jeopardy, Citibank is one of those "too big to fail" institutions. So here comes the bailout:

NEW YORK (CNNMoney.com) -- The U.S. government on Sunday announced a massive rescue package for Citigroup - the latest move to steady the banking giant, whose shares plunged in the past week on fears about its exposure to toxic mortgage securities.

The plan has two key features:

First, the U.S. Treasury and the Federal Deposit Insurance Corporation (FDIC) will backstop some losses against more than $300 billion in troubled assets.

Second, the Treasury will make a fresh $20 billion investment in the bank. The government has already injected $25 billion into Citigroup as part of the $700 billion bailout passed by Congress in October.
The government will take a stake in the bank, and President Lame Duck said this morning that more Citigroup style rescues could be in the cards. Okay... but wasn't Citigroup (which Dubya mistakenly called "Citicorp" during his brief press availability this morning) the same megabank that almost went to court with Wells Fargo over both banks' desire to buy smaller, equally troubled Wachovia? Let's take a walk back to October 6:

NEW YORK/WASHINGTON (Reuters) - Wells Fargo & Co and Citigroup Inc agreed on Monday to a 44-hour truce in their fight over regional bank Wachovia Corp after a weekend of legal wrangling.

Wells Fargo and Citigroup have been battling over the bank since Wells Fargo announced an offer Friday that bested Citigroup's proposal a week ago.

As part of their agreement on Monday to suspend all litigation, effective immediately, the three banks also said they would cease any formal discovery activities.

The increasingly bitter dispute has drawn in U.S. Federal Reserve officials looking to broker a deal. Sheila Bair, chairman of the Federal Deposit Insurance Corp (FDIC), said she expected an agreement "that serves the public interest" to be reached Monday, although the FDIC is not involved in the negotiations.

A person familiar with the situation said the various options discussed in the talks with the government included dividing up Wachovia between the two feuding companies. The source added that Wells Fargo would still like to buy all of Wachovia.

Citi, which announced a preliminary agreement to buy Wachovia's banking assets for $2.2 billion a week ago, was considering an offer for the entire bank, among other options, a person close to Citi said.

The source said Citi has no appetite to buy Wachovia's assets without some sort of government guarantee -- unlike Wells Fargo, which made a $15 billion counterbid for the entire bank on Friday. ...

... Citi said on Monday it is seeking more than $60 billion of damages from Wells Fargo. Citi said Wachovia would have collapsed on September 30 without its agreement to acquire most of its assets. ...

So let me get this straight: Just over a month ago, Citigroup was in a position to spend $2.2 billion buying Wachovia, and countless sums on lawyers to sue Wells Fargo for trying to buy it first, and now, they're broke? What gives? At the time of the ank dispute, Citi's shares were trading down 5.1 percent to $17.41. This morning, it opened at $5.99, having fallen 60 percent in a single week. And the bank is about to get $20 billion in cash from the fed. I guess they blew that $2.2 billion on something more pleasing than Wachovia?

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posted by JReid @ 11:17 AM  
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