Citigroup Gets Its Own Big Bailout
Monday, November 24, 2008PAUL KANGAS: Shares of Citigroup skyrocketed today on news the struggling bank is getting more money from the Federal government. The package contains a $20 billion loan and pledge to buy billions of dollars in toxic assets. Citi's rescue is the latest government effort to contain the financial meltdown. Erika Miller looks at whether it will work.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: There's no doubt most investors are relieved by the Citigroup rescue plan. Many, including Mike Levine of Oppenheimer Funds believe it is a major turning point for the company and its stock.
MICHAEL LEVINE, PORTFOLIO MANAGER, OPPENHEIMER FUNDS: I clearly think they are a survivor. I think there's extra capital and the government guarantee puts that to bed. And, I think, when we get to the, when we get to the other side of this cycle, credit cycle, I think Citi will certainly have pretty dramatic upside from $6 a share.
MILLER: However, some analysts are questioning whether this latest lifeline will be enough. S&P analyst Stuart Plesser says it's possible Citi will need another government handout.
STUART PLESSER, BANKING ANALYST, STANDARD & POOR'S: The concern is -- and my concern as well - is that Citi has written a lot of bad loans and has a lot of bad assets. And the $300 billion could spread from there if credit deteriorates further and the government needs to come back in with another loan at a later date.
MILLER: There are also concerns about who will be leading the company. For now, CEO Vikram Pandit and the Citi board will remain in place. But analysts say it's possible Citigroup shareholders will demand a shake-up given the sharp decline in the company's stock price and the virtual elimination of the dividend. Investors are also angry that Citi's plan to buy Wachovia fell apart, because it would have bolstered Citi's deposit base. In Washington, President Bush warned there could be more bailouts ahead.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: And if need be we're going to make these kind of decisions to safeguard our financial system in the future.
MILLER: But most analysts don't see any other big banks in immediate need of funds.
PLESSER: These other financial companies are not in that kind of level of stock sell off that Citi shares were at. So unless they're desperate or at the last gasp where Citi was at this stage, I don't see them coming immediately saying we need some money as well.
MILLER: But that could change if the economy deteriorates. Experts worry about deeper asset write downs which could mean deeper trouble for bank balance sheets. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
