Citigroup once again threatens to bring down the US financial system (when hasn’t it been doing that for the last 2 years) due to it’s plunging stock price and so the US government is ironing out another bailout of epic proportions. Essentially the worry is that the crumbling stock price could start to scare off corporate trading partners as well as average customers, which could lead to a bank run the likes of which we’ve never seen.
The first bailout came two months ago when Wells Fargo, Bank of America, and JP Morgan Chase had to accept $25 billion each at a 5% dividend rate because Citigroup needed $25 billion, and the government did not want Citigroup to be exposed as the weakest bank. Of course just looking at Citigroup’s losses over the past year and the coming year made it obvious that Citigroup was in a far weaker position than the other three which have had some writedowns but remained profitable and will likely remain somewhat profitable into the future.
Well after the events of the last two weeks, all bets are off. The market has basically put a massive bullseye on one of the largest banks in the world, and now the US government is structuring another bailout for Citigroup, which has $2 trillion assets ($800 billion deposits) all around the world as well as hundreds of billions in assets off of their books (which are causing all of these jitters).
Citigroup is different in some sense from banks like Lehman, Wamu, or Wachovia because Citigroup is in the class of banks so big and diverse that it is the financial system, not just a small isolatable fraction, providing services of every kind such as investment banking, corporate banking, commercial lending, and commercial banking in every corner of the globe to 200+ million customers including virtually every major corporation. Citigroup is exhibit A in definition of “too big to fail”.
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