Friday, February 27, 2009

Citigroup Stock Swap

Bloomberg has the early news today. Essentially, Investor Uncle Sam is swapping Citgroup stocks.

This resembles turning the taxpayers' somewhat safer investment into a highly risky one, except that when they are both doomed to be worthless investments, Uncle Sam will still wind up with the bank.

Here's a summary:
  • Our -- that is, the taxpayers' -- 8% stake of preferred shares in Citogroup will be exchanged for a 40% share in common stock. This really doesn't matter much (see above).
  • The bank is suspending all dividends to both common and preferred shareholders. This doesn't matter much, either, since everyone knows Citigroup has no money left with which to pay dividends.
  • The board will be reorganized just as soon as the drunken slumber of the old board can be interrupted.
  • A "majority" of the new board members will be "independent."Independent of Wall Street thinking? We'll see, but don't count on it.
  • And, "the U.S. doesn’t immediately intend to inject additional money after channeling $45 billion to the New York- based company last year."
Emphasis on the "immediately." Citigroup is a zombie bank. This latest is merely another half-step in Treasury Secretary Tim Geithner's piquaresque adventure of going through every capitalist contortion to prop up the insolvent mega-bank without nationalizing it. It won't work.

Heck, it hasn't worked. Use whatever word makes you comfortable -- stock swap, nationalization, receivership, insolvency, limbo, purgatory. The fact remains, the U.S. taxpayers now run, and effectively own, Citigroup.

Geithner just can't bring himself to tell the other 60% stockholders that their stock is worthless.

1 comment:

Emma whatson said...

Citigroup stock ended on a negative note following the news, as investors stepped up their pressure to urgently scale down, if not terminate, their operations from the South American region. It is facing heavy challenges from the economic slowdown in Brazil, to fiscal crisis in Venezuela, and now the current political and legal challenge in Argentina that is proving to be nothing but troubles and extraordinary difficulties for the global investment group to handle