Referencing a NY Post article, HERE’S WHAT THE FEDS MIGHT DO TO HELP OUT CITI, Henry Blodget comments on the six ways.
Six Ways Feds Might Bail Out Citigroup
Excerpt: Reuters compiles six ways that the Feds might bail out Citigroup. It’s hard to see how any of them will save common shareholders:
More preferreds: The US Treasury Department bought $25 billion of preferred shares and warrants from Citigroup in October when it injected capital into banks under the $700 billion Troubled Assets Relief Program. It could buy more, boosting Citigroup’s capital and a renewed government willingness to support the bank, which could soothe investors.
This is probably the most likely scenario. Unfortunately, it will pretty much wipe out the company’s tangible book value (excluding preferred stock), which is what matters to common stockholders….
Loan or ownership stake: Another possibility is a bailout similar to the original $85 billion package for American International Group Inc. The government made a loan that would be the first to be repaid if the insurer went bankrupt, and took an 80 percent ownership stake…
Yes. And it would clobber stockholders.
Liquidation: The Federal Deposit Insurance Corp. could seize the bank. This could shelter the financial system from some of Citigroup’s toxic assets, but at tremendous cost.
Unlikely, in our opinion. The government has enough things to worry about without having to chop up Citigroup and sell off the pieces.
Guarantees: The government could guarantee all of Citigroup’s debt and derivative obligations. This could be a low-cost solution if investor confidence in Citigroup returns.
This won’t stop the additional asset writedowns…
Buy the worst assets: The government could buy Citigroup’s worst assets, perhaps at a discount, as the government’s $700 billion rescue package was supposed to do.
A new TARP. That will certainly improve Hank Paulson’s reputation.
Regulatory changes: Instituting a new short-selling ban, loosening mark-to-market accounting rules for bank assets, or halting trading in credit default swaps could provide a temporary boost to banks in general, and Citigroup in particular.
Short of a temporary pop, we don’t think any of these moves will help…
Full article here.
