U.S. Rescues Citi with $20 Billion Capital - Hit Hard
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HIT HARD
Earlier this month, U.S. Treasury Secretary Henry Paulson said the
$700 billion industry rescue package would instead be used as a means
to provide direct capital injections to banks.
That decision hurt Citigroup hard, and the bank's problems were
compounded by the tens of billions of dollars of assets that it decided
to buy back or move onto its balance sheet.
Citigroup's market value on Friday was just $20.5 billion, down from
more than $270 billion two years ago -- and even below the $25 billion
initial capital injection.
"In the near term it reduces systemic risk, but it does raise
questions about what it means for the industry longer-term," said David
Forrester, foreign exchange strategist at Barclays Capital in Singapore.
On Nov 12, analysts at CreditSights Inc said capital at Bank of
America Corp and Wells Fargo & Co could "fall short of the comfort
zone" in a very severe recession.
Bank of America is buying Merrill Lynch & Co and in July bought
troubled mortgage lender Countrywide Financial Corp, and Wells Fargo is
buying Wachovia Corp. Merrill and Wachovia have had significant losses
tied to mortgages.
Citigroup's agreement recalls JPMorgan Chase & Co's purchase of
Bear and Switzerland's rescue package for UBS AG and Citigroup's own
bid for Wachovia, with government backing to absorb some of a bank's
losses. Wells Fargo outbid Citigroup for Wachovia, and did not seek
government backing.
In Europe, Citi's shares soared on the news of the rescue. In
Frankfurt, the bank's shares were up 41.89 percent at 4.2 euros at 0819
GMT.
(Additional reporting by Glenn Somerville in Washington)
(Reporting by Dan Wilchins and Jonathan Stempel; Editing by Jean Yoon and Rupert Winchester)
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