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Tuesday, November 25, 2008

So why DID we just throw a truckload of money at Citigroup then?
Posted by Jill | 5:19 AM
Did the Bush Administration just shovel a ton of taxpayer money at Citigroup in order to shore up an investment for his Saudi pals? It sure looks that way.

I don't recall seeing or reading anywhere in the American mainstream media last week that Saudi prince Alwaleed bin Talal had invested $349 million in the ailing banking giant, did you?

The Guardian, Thursday, November 20:
Saudi Arabian prince Alwaleed bin Talal has come to the rescue of Citigroup with a much-needed cash injection today.

The surprise turnaround ended a two-year selloff that has wiped more than $200bn (£135bn) from the bank's market value.

The Saudi prince will increase his stake from about 4 to 5% in the coming days.

The move initially filled investors with confidence and sparked a buying spree before the bell. The shares surged 25 cents to $6.65, but then fell back to tumble by another 17.5%. Yesterday, they fell more than 22% in a single session while the stock is down more than 90% since 2006.

Based on Wednesday evening's closing price, the prince plans to invest about $349m of his fortune in Citigroup shares.

In a statement released at 9am in New York, Talal said he believed Citi's shares were "dramatically undervalued" and expressed "full and complete support to Citi management" including the embattled chief executive, Vikram Pandit.

He said the New York-based bank was "taking all the necessary steps to position the company to withstand the challenges facing the banking industry and the global economy".

Talal said he was "fully confident that Citigroup's universal banking model and global franchise will make it a long-term winner in the financial services industry".


Then suddenly, over the weekend when everyone is watching football and crowding the supermarkets buying turkey and cranberries, suddenly out of nowhere the Fed pumps $20 billion into the company, and lo and behold, on Monday the company's stock rises over 57 percent. Not a bad one-day haul for Prince Alwaleed bin Talal.

But then, George W. Bush has always taken good care of his Saudi friends, even at the expense of, oh, say, almost 3000 people's lives on a sunny day in September seven years ago.

Bin Talal owns five percent of Citigroup. The Abu Dhabi Investment Authority took a 4.9% stake almost exactly a year ago.

But aside from helping one of Bush's Saudi buddies get a nice one-day return on his money, will the Citigroup bailout help stabilize the financial markets? We can has recovery now?

Hardly:
In the short term, the latest effort to steady Citigroup has removed the risk that a sudden failure of the giant bank would send losses cascading through the financial industry.

But longer term, the new bailout could haunt regulators and taxpayers. The move ultimately may encourage banks to take more risks in the belief that the government will step in if they run into trouble.

With a recession looming, if not here already, banks big and small are bracing for more loans to sour, particularly those related to commercial real estate, autos and credit cards. Many are making fewer loans, even though the industry has received nearly $300 billion from the government.

Before long, anxious investors may start wondering which banks will be vulnerable next. If confidence fades, other big lenders will probably seek deals like Citigroup’s, in which the government has pledged to pick up potentially $290 billion in additional losses. Regulators drafted the plan with an eye to using it as a template for future bailouts.

There are other worries for Citigroup’s big rivals. Almost overnight, Citigroup went from being the sick man of the industry to an institution with an edge over its competitors. The government is guaranteeing $250 billion of risky assets and pumping an additional $20 billion into the bank.

With the government behind it, Citigroup may now be able to borrow money in the capital markets at lower interest rates than its peers.

“Citi has a decided advantage over them because of the loss-sharing agreement,” said John Kanas, the former chief executive of North Fork Bank of Long Island. While banks may hold out for now, it may be only a matter of time before they too line up, several analysts said.


And at least until January 20, the question of whether the Bush Administration puts some coin in their tin cup will depend on whether they have Bush cronies like the Saudi royal family as major shareholders. But then, it was always thus with this administration.

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3 Comments:
Blogger D. said...
Hmmmmm... Bush does need a diversion in the next couple months so he can smuggle bin Laden out of the White House basement... this isn't it, though.

Anonymous blader said...
It's pardon week. Add Citigroup Sultan Ltd to the bizarre menagerie of criminals Bush has elected to pardon while he takes a break from scorching the earth.

Blogger Rhode Island Rules said...
F 'em all. I am so sick of this friggin manipulation while the majority of us suffer.