Wednesday, December 16, 2009

Citi Again!

Breaking news from

The U.S. Treasury Department is delaying sales of its Citigroup Inc. common stock because of the low price in the bank’s secondary offering, a person familiar with the matter said.

The Treasury still plans to sell all of its stake in the bank over the next six to 12 months, the person said today on condition of anonymity.

This blog has inveighed against keeping Citi alive since inception about a year ago. Citi's direct predecessor was one of the major contributors to sucking the public into the bubble in the late 1920s, and Citi was bailed out in 1980 and the early 1990s.

Alert readers are aware that Abu Dhabi seeks to terminate Citi stock purchase:

Citigroup Inc. said Tuesday that the Abu Dhabi Investment Authority has filed a claim against the bank seeking to either terminate a deal to buy $7.5 billion worth of its stock or receive damages of more than $4 billion.

It's simply unclear whether the hundreds of billions of dollars of off-balance sheet SIV assets that Citi continues to own and supposedly will have to take on-balance sheet soon makes it functionally insolvent.

Citibank depositors are quite different from Citigroup stockholders and bondholders. Calling Citigroup (and BofA, GS, etc.) a "bank" was the linguistic mechanism that helped justify the bailouts. These bank holding companies could disappear while protecting insured depositors of bank subsidiaries. At this point FDR's argument that a bank should just be a bank and bank holding companies were simply bad things is valid.

Citi should have gone into receivership or something similar within the past year. Now we have the spectacle of the most powerful government in the history of the world messing around with $3 stocks. Humiliating for the U. S. and for Citi.

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