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Citibank – Can It Avert Nationalization?

As ‘nationalization‘ appears to be the U.S. government’s answer to saving the banking industry, the banks themselves are doing all that they can to boost shareholder confidence.

The latest news from Citibank is that they have approached the US government to agree on a new capital injection that would increase their stake in the troubled bank to about 40 per cent but prevent an outright nationalization.

According to this morning’s FT the U.S. government has a strong preference for supporting banks in private markets wherever possible because of the potential international disruption that could ensue if a large global bank fails. But Treasury did not rule out nationalization in all circumstances. The situation is obviously unlike that of Lehman Brothers which the authorities were quite willing to let falter despite international implications.

The move would allow Citigroup to write off some of its existing debt and raise the amount of common stock. While this could translate to happier investors on one hand (because of a larger portion of common stock requirement when details of the new stress test are announced this week), it would also dilute existing Citigroup stockholders significantly.

No final decision has been made.

Time to call a foreign friend? Or reach for a government lifeline?

According to the New York Times,

Citigroup also hopes to persuade other private holders that bought preferred shares – including foreign government investment funds like the Abu Dhabi Investment Authority, the Government of Singapore Investment Corporation, and the Kuwait Investment Authority – to participate by converting some of their stakes into common equity.”

Is it time to call a (foreign investor) friend? Or reach for yet another lifeline to the federal government? One thing is for sure, it is unlikely that foreign investors are likely to participate until they know the U.S. government’s position.

And if Citibank does not sell out to the Fed, then it looks like it will follow the path of other banks by selling out to foreigners.  Can any American bank survive survive this mess?

Image Credit: AP

Written by Reenita Malhotra

Reenita Malhotra Hora is an Ayurveda clinician, entrepreneur, writer and mom. Her experience has ranged from running Ayoma, an Ayurveda business to running a natural health practice at San Francisco's California Pacific Medical Center.

Reenita is a published author of two books books about health and wellness: ‘Ayurveda - the Natural Medicine of India’ and
‘Inner Beauty’. She is also the Editor for Green Options Media's business blogs and a freelance writer for a variety of print and web publications.

In quieter moments, she likes to spend her time hiking, swimming the warm seas, cooking with the family or writing fantasy fiction adventure stories for kids from from 2 to 92.

Check out her wisdom at www.reenita.com

Comments

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  1. Are we doing a good thing for the economy by trying to stabilize companies that are headed out of business because of their entanglement with the market and the number of jobs of that stand to be lost?

    Are we postponing the inevitable? What if these companies go out of business despite the fact that the government has given billions of dollars in an effort to keep the companies going out of business? Where will be then if the government loses billions and all the jobs the government were trying to save are gone any way?

    http://www.weeklypoint.com/2009/02/23/us-may-invest-more-in-citigroup-bank/

  2. Well said Dan. The very fact that some of these companies have had to reach out to the government for multiple rounds of funds is a sign that we might be throwing good money after bad. Why not use government money to actually help build the economy rather than focusing on putting out fires again and again and again…

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