Monday, November 24, 2008

The Citi Never Sleeps...

... and neither do Citi's shareholders, debt holders, retail depositors, employees, the Wall Street, the US Govt, US taxpayers and the rest of the world. All thanks to the new "Citi-gonna-die" circus in town. That possibility, at least for the time being appears significantly diminished with the US Govt coming out with a massive bailout designed to "protect the global financial system". I would have no problem with that, except that the terms of the bailout appear ridiculously loaded in Citi's favor. Citi is essentially getting Govt backing for over $300 Billion of its toxic assets in exchange for a few perference shares, warrants at 8% coupon and a promise to be more judicious in the future. No management overhaul, no Govt presence on the board.. even the common shareholders are being protected, for crying out loud. What the hell!! Am I missing something here?

Compared to the terms AIG, Freddie, Fannie and a host of other "too big to fail" institutions got, the Citi deal looks like a gift from the heavens. Poor Lehmann didn't even get a deal and ended up as a roadkill on the global financial highway. And while I'm no fan of Detroit, I find it hard to believe that the Congress looks willing to allow GM to slip into a coma while it debates a $25 Billion bailout package for Detroit. I totally agree that the problems Detroit faces are their own creation, but then again aren't Citi's problems their own creation too? And isn't GM every bit as big an American institution as is Citi? Which beings me to my question: Are some institutions more equal than others? Well, it's either that or the US Treasury and the Fed are making things up as they go along which is a very scary thought, because it means they have absolutely no idea of what's going on and what to expect next...

Now that the Govt. has bailed out Citi on such generous terms, every other firm with any sort of life still left in it is going to run to Capitol Hill clamouring for help on similar terms leaving the Treasury and Fed wondering what the hell they had got themselves into!! In any case, it looks like the US and global economy are headed in some very interesting directions. It would have been so much fun, if only it wasn't so scary... Until later... cheers...

1 Comments:

At 9:58 AM , Anonymous Poornima said...

good 2 c u back...........but one thing is there,eventhough there is no govt. prresence on the board,they will have admin blocks in their funcn in the future.each and every pie they spend will have 2 b explained and get clearance.Which from an organisational pov will b a pain in the A........

 

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