Cota 1061

Bush says deal necessary to safeguard financial system

MSNBC
Associated Press
updated 3:25 p.m. ET Nov. 24, 2008

WASHINGTON - Rushing to rescue Citigroup, the government agreed to shoulder hundreds of billions of dollars in possible losses at the stricken bank and to plow a fresh $20 billion into the company.

Regulators hope the dramatic action will bolster badly shaken confidence in the once-mighty banking giant as well as the nation’s financial system, a goal that so far has been elusive despite a flurry of government interventions to battle the worst global crisis since the 1930s.

Wall Street investors reacted enthusiastically. The Dow Jones industrials shot up about 300 points in morning trading. Stock markets in Britain and Germany also gained ground. Citigroup shares themselves climbed 61.3 percent to $6.08 in morning trading.

“If they didn’t help, the damage would be beyond imagination,” said Teck-Kin Suan, economist at United Overseas Bank in Singapore.

The action, announced late Sunday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already fragile financial system and the U.S. economy.

“With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy,” the three agencies said in a joint statement. “We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks.”

President George W. Bush held open the prospect Monday of similar arrangements should other companies falter. “If need be, we will make these kind of decisions to safeguard our financial system in the future,” Bush said.

Analysts said a Citigroup failure would have seized up still fragile lending markets and caused untold losses among institutions holding debt and financial products backed by the company.

“It would create chaos,” said Winson Fong, managing director at SG Asset Management in Hong Kong, which oversees about $3 billion in equities in Asia. “Simply put, you couldn’t borrow or lend for a while. This is a nightmare scenario.”

The bold move is the latest in a string of high-profile government bailout efforts. The Fed in March provided financial backing to JPMorgan Chase’s buyout of ailing Bear Stearns. Six months later, the government was forced to take over mortgage giants Fannie Mae and Freddie Mac and throw a financial lifeline — which was recently rejiggered — to insurer American International Group.

Critics worry the actions could put billions of taxpayers’ dollars in jeopardy and encourage financial companies to take excessive risk on the belief that the government will bail them out of their messes.

The Citigroup rescue came after a weekend of marathon discussions led by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. Timothy Geithner, president of the Federal Reserve Bank of New York, who is being tapped by President-elect Barack Obama as his Treasury chief also participated. Bush said Monday he consulted with Obama on the Citigroup rescue.

Vikram S. Pandit, Citi’s chief executive officer, welcomed the action. “We appreciate the tremendous effort by the government to assure market stability,” he said in a statement issued early Monday.

The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package. The capital infusion follows an earlier one — of $25 billion — in Citigroup in which the government also received an ownership stake.

As part of the plan, Treasury and the FDIC will guarantee against the “possibility of unusually large losses” on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

Under the loss-sharing arrangement, Citigroup Inc. will assume the first $29 billion in losses on the risky pool of assets. Beyond that amount, the government would absorb 90 percent of the remaining losses, and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government’s portion of potential losses. The Federal Reserve would finance the remaining assets with a loan to Citigroup.

In exchange for the guarantees, the government will get $7 billion in preferred shares of Citigroup. In addition, Citi said it will issue warrants to the U.S. Treasury and the FDIC for about 254 million shares of the company’s common stock at a strike price of $10.61.

As a condition of the rescue, Citigroup is barred from paying quarterly dividends to shareholders of more than 1 cent a share for three years unless the company obtains consent from the three federal agencies. The bank is currently paying a dividend of 16 cents, halved from a 32-cent payout in the previous quarter. The agreement also places restrictions on executive compensation, including bonuses.

Importantly, the agreement calls on Citigroup to take steps to help distressed homeowners.

Specifically, Citigroup will modify mortgages to help people avoid foreclosure along the lines of an FDIC plan that was put into effect at IndyMac Bank, a major failed savings and loan based in Pasadena, Calif.

Under the IndyMac plan, struggling home borrowers pay interest rates of about 3 percent for five years. Rates are reduced so that borrowers aren’t paying more than 38 percent of their pretax income on housing.

The IndyMac plan also was used as a model for a new program by Fannie Mae and Freddie Mac and for two other failed thrifts taken over by the government on Friday. FDIC Chairman Sheila Bair has been pressing Treasury to use $24 billion from the $700 billion bailout program to put the mortgage modification program on national footing, but Paulson is opposed to that idea.

Citigroup has seen its shares lose 60 percent of their value in the past week, reflecting a crisis of confidence among skittish investors. They are worried all the risky debt on Citigroup’s balance sheet will turn into losses as the economy worsens and the markets stay turbulent — losses that could be nearly impossible to reverse.

Citigroup is such a large, interconnected player in the financial system that it is seen by Washington policymakers as too big to fail. The company, with some 200 million customers, has operations stretching around the globe in more than 100 countries.

Analysts consider Citigroup the most vulnerable among the major U.S. banks — especially after it failed to nab Wachovia Corp., which was bought instead by Wells Fargo & Co. That was a missed opportunity for Citi to gets its hands on much-needed U.S. deposits that would bolster its cash position.

Citigroup was especially hard hit by the meltdown in risky, subprime mortgages made to people with tarnished credit or low incomes. Foreclosures on those mortgages spiked, leaving Citi and other financial companies wracking up huge losses on the soured investments. The company has failed to turn a profit during the past four quarters and has announced plans to slash thousands of jobs.

© 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Page last updated at 18:12 GMT, Thursday, 27 November 2008
BBC News

Spain has launched an 11bn euro (£9.2bn) plan aimed at boosting the economy and creating 300,000 jobs.

The plan, which represents 1.1% of the Spain’s Gross Domestic Product (GDP), is part of the European Union’s 200bn euro stimulus announced on Wednesday.

The money will be mainly invested in infrastructure and public works, Spain’s prime minister Jose Luis Rodriguez Zapatero said.

Spain’s unemployment reached 12.8% in October - the highest in the eurozone.

Construction crisis

The Spanish government said it would invest 0.8bn euros in the ailing car industry, which has been through a severe downturn and seen sales plummet 54.6% since the beginning of the year.

The construction industry has also been severely hit by the financial crisis, with property prices falling and companies slashing thousands of jobs.

The Spanish economy shrank by 0.2% in the third quarter, putting an end to 15 years of continuous growth.

The European Commission has demanded that each EU member must spend about 1.2% of GDP to fight the economic slowdown.

Germany launched a similar 50bn euro package, while next week France is expected to unveil economic measures worth 20bn euros.

Tue Nov 25, 2008 3:51pm GMT

VALENCIENNES, France (Reuters) - The French government will launch a major stimulus plan to revive the flagging economy within the next 10 days, President Nicolas Sarkozy said on Tuesday.

Sarkozy said the plan would include measures to boost the construction and car sectors, especially auto suppliers who have been particularly hard hit by the recent economic slowdown.

“In less than 10 days we will announce a revival plan to save the car industry…and strengthen the building sector,” Sarkozy said in northern France, without giving further details.

Speaking later in parliament, Prime Minister Francois Fillon said the measures would include tax initiatives to help car firms, saying they had around one million vehicles in stock.

The government would also make investments to enable companies to create hybrid and electric vehicles, he added.

Coordination with the European Union and the new U.S. administration would be crucial in implementing such a plan to help the global economy, he said.

The European Commission is seeking to get EU states to agree to a broad range of measures, including temporary sales’ tax cuts, to pull the 27-nation bloc clear of recession.

France holds the rotating presidency of the European Union and has pushed hard for an EU-wide response to the slowdown following coordinated action earlier in the autumn to ease the financial crisis that brought the banking system to its knees.

Sarkozy said on Monday it was time “to invest massively in infrastructure, in research, in innovation, in education, in training people, because it is now or never.”

France has expressed frustration at Germany’s more cautious approach to the onset of recession, with Berlin unwilling to commit vast amounts of cash to spurring the economy.

A slew of poor economic data and results over the past month have highlighted the challenge facing Europe, with the continent’s car firms already suffering.

PSA Peugeot-Citroen announced last week it planned to cut 3,550 jobs across its sites in France, while Renault has said it will cut 6,000 jobs across Europe.

France’s construction industry is also feeling the pinch. Data released on Tuesday showed new housing starts fell 20.6 percent in the three months to the end of October.

(Reporting by Yann Le Guernigou, writing by Crispian Balmer; editing by Marcel Michelson)

© Thomson Reuters 2008 All rights reserved

26/11/2008 00h28

BUENOS AIRES (AFP) - President Cristina Kirchner on Tuesday unveiled a massive public spending plan to pump more than 21 billion dollars into Argentina’s infrastructure and counter effects of the global cash crunch.

“On December 15 we will launch the most ambitious public works programs in memory,” said Kirchner, making the announcement at the closing ceremony of the trade association representing builders.

Argentina expects economic growth to slow to four percent in 2009, down from 6.5 percent expected for 2008. This follows years of growth nearing nine percent following the 2002 crisis.

“There are public works that call for (intensive) manual labor. Works that will mean hiring more than the 362,000 workers currently in the building sector, increasing the number to nearly 770,000 jobs,” Kirchner said.

Construction has been one of the engines of Argentina’s economic growth.

Argentina’s Gross Domestic Product (GDP) increased 8.8 percent in 2003; 9 percent in 2004; 9.2 percent in 2005; 8.5 percent in 2006, and 8.7 percent in 2007.

Earlier in the day Kirchner announced proposed tax and investment incentives aimed at encouraging the repatriation of capital.

The measure would allow Argentines who bring back their funds stashed abroad and pay taxes of between one and eight percent, depending on where the funds are directed.

The bill also includes tax incentives and debt relief for small businesses and for firms that encourage employment.

The Kirchner administration has been moving aggressively to counter the effects of the global crisis.

On November 20 it nationalized 26 billion dollars worth of private pension funds run by 10 banks, a move opponents believe is really aimed at preventing a loan default on Argentina’s national debt of some 150 billion dollars.

The next day it took steps toward nationalizing Aerolineas Argentinas (AA) and Austral, the country’s largest airlines both owned by the Spanish group Marsans.

The government is seen as pursuing the nationalization trend begun under Kirchner’s predecessor and husband, Nestor Kirchner, who in his 2003-2007 mandate nationalized the railroads, waterworks and communications companies.

By Tim Paradis, AP Business Writer
USA Today

NEW YORK — Stocks barreled higher for the second straight session, this time in a relief rally over the government’s plan to bail out Citigroup. The Dow Jones industrials soared nearly 400 points, bringing their two-day advance to more than 880, or 11%.
Investors are hoping the rescue of Citigroup will help lift some of the uncertainty hounding the financial sector and the overall economy. Many observers saw the move as offering a template for how the government might carry out other bank stabilizations if they are needed.

Still, the market remains wary, especially with the economy in a serious downturn. The Dow was up more than 500 points in the last hour before giving up some of its gains — many investors wanted to take some money off the table before the next bit of bad news arrives.

While the markets anticipated last week that some sort of rescue could occur, investors appeared emboldened by the U.S. government’s decision late Sunday to invest $20 billion in Citigroup and guarantee $306 billion in risky assets.

President-elect Obama formally named his economic team but didn’t offer specifics of an economic stimulus plan nor state that he would push back a plan to raise taxes on the richest Americans. His plan targets saving or creating 2.5 million jobs during the next two years.

FIND MORE STORIES IN: Europe | Barack Obama | Germany | Japan | France | Britain | Wall Street | Federal Reserve | Dow Jones | United States Treasury Department | Nasdaq | Freddie Mac | Fannie Mae | Citigroup | Russell | National Association of Realtors | Citigroup Inc | Federal Deposit Insurance Corp | International Group | Federal Reserve Bank of New York | Lang | Timothy Geithner | T-bill | September. | FTSEurofirst | LanczGlobal | Schwarz
Alan Lancz, director at investment research group LanczGlobal, said that while the market might have wanted a firmer commitment against raising taxes it was too soon for Obama to nail down specifics of his plan. Lancz expects the new administration wouldn’t rush to implement the hikes with an economy as weak as it has been.

“There’s so many balls in the air right now he’d be foolish to make specific comments,” Lancz said, noting that the economic picture could change greatly by inauguration day.

The market rallied following announcement of the plan by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. to stabilize Citigroup. It’s only the latest effort this year to support a banking system troubled by bad debt and flagging confidence. Besides implementing its $700 billion bailout plan for the overall financial industry, the government has bailed out insurance giant American International Group and taken over lenders Fannie Mae and Freddie Mac.

Still, despite the size of Monday’s gain, investors remain cautious because the nation faces a difficult economy and the stock market likely will continue to see volatility.

Jim Baird, chief investment strategist with Plante Moran Financial Advisors, said Wall Street is relieved by the government’s decision to help prop up Citigroup but he predicted that the initial enthusiasm could give way to further questions about the effectiveness of the government’s array of efforts to sew up problems in the financial sector.

“I think, at a minimum, what you’re seeing today is some relief that, first of all, they’re stepping in to do something,” he said. “There’s still more questions than answers surrounding whether what’s been done is going be enough.”

The Dow rose 396.97, or 4.93%, to 8,443.39.

Broader stock indicators also jumped. The Standard & Poor’s 500 index advanced 51.78, or 6.47%, to 851.81, and the Nasdaq composite index rose 87.67, or 6.33%, to 1,472.02.

The Russell 2000 index of smaller companies rose 19.04, or 4.68%, to 425.58.

The rise in stocks follows a rally Friday that saw the Dow industrials jump 494 points, or 6.5%. The other major indexes also rose sharply. Still, stocks ended the week with a loss after heavy selling Wednesday and Thursday.

Bond prices were mixed Monday as investors examined the government’s bailout plan for Citigroup. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.33% from 3.20% late Friday.

The Treasury bill market showed continuing high demand, a sign of investors’ caution. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.02% from 0.04% late Friday.

The dollar was mostly lower against other major currencies, while gold prices rose.

Baird said the uncertainty over whether the government’s cocktail of direct investments in financial houses and support of debt obligations will prove effective has led to the stock market volatility. The concerns about banks and the broader economy are likely to continue, he said.

“Just the sheer breadth of potential outcomes is very, very wide which I think makes it difficult for investors to determine how do you play it from here.”

Wall Street shrugged off a larger-than-expected drop in sales of existing homes last month as investors instead focus on the government’s rescue for Citigroup. And while the housing numbers fell short of expectations, Wall Street expected sales would fall sharply after last month’s upheaval in the financial markets.

The National Association of Realtors says sales of existing homes fell 3.1% to a seasonally adjusted annual rate of 4.98 million in October. That’s down from 5.14 million in September.

Citi shares surged $1.94, or 51%, to $5.71 following the government’s decision to inject capital into the company.

Health care company Johnson & Johnson said Monday it would acquire Omrix Biopharmaceuticals Inc. for $438 million. The move is aimed at expanding J&J’s surgical product unit; J&J will pay $25 per share for the company, an 18% premium over Omrix’s close Friday of $21.16.

J&J rose 7 cents to $58.42, while Omrix rose $3.43, or 16%, to $24.59.

Advancing issues outnumbered decliners by about 6 to 1 on the New York Stock Exchange, where volume came to 1.06 billion shares.

Overseas, Britain’s FTSE 100 jumped 9.84%, Germany’s DAX index surged 10.34%, and France’s CAC-40 rose 10.09%. Hong Kong’s Hang Seng index fell 1.59%; markets in Japan were closed for a holiday.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

By Steven Pearlstein
Monday, November 24, 2008; 10:24 AM
Washington Post

Of all the rescues mounted by the government so far this year, none carries with it more symbolism, or more irony, than that of Citigroup.

Until recently, Citi was not only the largest U.S. financial institution, but the very embodiment of the new financial order. Under the relentless empire building of former chief executive Sanford Weill, it was Citi that brought down the old regulatory wall that had separated commercial banking from investment banking and insurance.

The combination of Citibank with Solomon Smith Barney under the bright red umbrella of Travelers Insurance was accepted with a regulatory wink and nod by the Federal Reserve while then-Fed Chairman Alan Greenspan worked to persuade Congress to make it legal by repealing the Glass-Steagall Act, put in place during the Great Depression to prevent another market crash like that of 1929. Now that another market crash has required the government to rescue Citi, there will certainly be those who wonder whether the New Dealers didn’t have it right all along.

The rationale for saving Citi is that with $2 trillion in assets, more than 300,000 employees and operations in 100 countries, this was a bank that was too big and too inter-connected with the rest of the financial system to be allowed to fail. The question now, however, is whether an institution of that size and scope is also too big to succeed.

For no sooner had Weill stitched together his empire than it began coming unraveled as a result of a series of soured investments and embarrassing ethical scandals that cost shareholders tens of billions of dollars. In the years since Weill’s departure, as various pieces of the company have been sold off or closed down, it has become obvious that the promised economies of scale had been overhyped, the synergies across business lines had never developed and the cultures and systems of the various parts had never meshed. The whole thing was simply too big and too complex to be managed.

It has also proved too big to be regulated. Over the past 20 years, the Federal Reserve, Citi’s chief regulator, has been unable to get a handle on the bank’s excessive risk-taking and incessant corner-cutting. Time after time, Citi rushed to jump aboard the latest gravy train — developing country loans, commercial real estate, Internet stocks, subprime lending and securitization — and time after time, Fed regulators failed to spot a problem until it was too late.

The Fed undertook what amounted to a rescue of Citi back in the early ’90s, opening its lending window and lowering interest rates to avoid a collapse. This time the problem is even bigger and the rescue more explicit, with the Fed itself having to put its own balance sheet at risk to fix a problem that could have been prevented or contained if its own regulators had only been more vigilant.

While it was Weill who created the modern Citi and the business model on which it is based, it was his hand-picked and hapless successor, Charles Prince, who steered the company into the ditch.

It didn’t have to be that way.

In John Reed, the former chief executive of Citibank, Weill had a co-chief executive who was an MIT-trained engineer deeply skeptical of Wall Street financial engineering and committed to consumer banking and sound commercial underwriting — until Weill ousted him in a boardroom coup. And in Jamie Dimon, Weill had a lieutenant who was both a brilliant strategist and self-confident leader who could have saved Citi from following the Wall Street herd over the cliff — as he subsequently did at J.P. Morgan Chase — if Weill had only been willing to name him heir apparent. Surely neither Reed nor Dimon would have been as clueless as Prince about the risks taken by his subordinates. Nor would either have been so determined to run with the Wall Street herd, as Prince clearly was when he told the Financial Times in the summer of 2007 that while it was obvious that a huge credit bubble had developed, Citi had no choice but to keep dancing as long as the music was playing.

There is one top Citi executive, however, who has managed to serve alongside of Weill, Prince and the newest chief executive, Vikram Pandit, with surprisingly little damage to his own reputation.

As Treasury secretary, Robert Rubin joined with Greenspan in supporting Citi’s campaign to repeal Glass-Steagall. And when he resigned from Treasury in 1998, Rubin accepted Weill’s offer to become vice chairman of Citi, where he has quietly worked the back channel to Washington and other international capitals and served as strategic counselor to the chief executive and the board of directors.

Although Rubin has been cagey about his role at Citigroup, what is indisputable is that all of the decisions that have led to Citi’s recent troubles were taken while he was chairman of the executive committee and were made by executives whom he supported and with whom he worked closely day to day. He supported them when they were criticized, and as a director he approved compensation packages that rewarded them (and himself) handsomely for judgments that turned out to have been disastrous for the shareholders.

Yet even as the government has now been forced to step in to save Citi by investing $45 billion in new capital and putting a floor under its losses, Rubin and all the other directors and top executives have been allowed to remain at the helm. You have to wonder how much more of the shareholders’ and the taxpayers’ money they would have to lose — $100 billion? $200 billion? $1 trillion? — before the Treasury and the Fed would demand their resignations.

The ultimate irony, of course, is that just as Rubin & Co. at Citi were being bailed out by the Bush administration, President-elect Barack Obama was getting set to announce a new economic team drawn almost entirely from Rubin acolytes.

That’s not to take anything away from the qualifications of the Timothy F. Geithner, Obama’s pick to be Treasury secretary, who owes his current position as president of the Federal Reserve Bank of New York to Rubin’s aggressive lobbying; or soon-to-be White House senior economic adviser Lawrence H. Summers, who was Rubin’s deputy secretary at the Treasury and whose appointment as president of Harvard was championed by Rubin as a member of the university’s government board; or Peter R. Orszag, Obama’s choice to be budget director, who was hired by Rubin to head a Democratic think tank on economic policy that he founded. They make a great team.

But perhaps the next time Obama thinks about assembling a group of wise men to advise him on the economic crisis, he might consider leaving Rubin out of the mix. The accountability that Obama has promised to bring to economic policy should start at home.

Steven Pearlstein can be reached at pearlsteins@washpost.com.

DUE DILIGENCE

Government help may be only option as market cap falls $160 billion in a year

By Sam Mamudi, MarketWatch
Last update: 1:52 p.m. EST Nov. 21, 2008

NEW YORK (MarketWatch) — This time last year, Citigroup Inc. was valued at about $180 billion. As of Friday morning, its market capitalization stood at $20 billion — and its once-proud share price had shriveled to $3.75, a 16-year low.
Citigroup’s share price has dropped more than 60% this week, and analysts are starting to wonder just what the future holds for the financial-services company (C:Citigroup, Inc Last: 3.77-0.96-20.30% 4:01pm 11/21/2008) , a Dow Jones Industrial Average component.

There are several options facing Citigroup as it tries to stem the decline.

It could sell some of its business units or even sell itself whole — both are under consideration, according a Wall Street Journal report — or it could try to buy itself time and gain market confidence by firing Vikram Pandit as chief executive.

In a worst-case scenario, a government bailout along the lines of that handed to American International Group (AIG:American International Group, Inc Last: 1.60+0.16+11.11% 4:02pm 11/21/2008) could be used to rescue Citigroup.

What could happen
In a call with senior managers on Friday morning, Pandit reportedly said he intends to keep the bank whole and independent. But events appear quickly to be overtaking Pandit, the former Morgan Stanley executive and hedge-fund manager who took over as CEO last year.

Citigroup’s board was meeting Friday to discuss its options, according to a report by Bloomberg. The board may decide to overrule Pandit and sanction sell-offs.

An analyst note Friday from Deutsche Bank illustrated the extent to which the Citigroup’s plunging stock price could reduce the bank’s value.

“The issue with Citi is the degree to which the downtrend in its stock price affects fundamental factors, as seen with other financial firms over the past few months,” said the research brief. “For this reason, we noted in our report that Citi’s stock could decline to about half of tangible book value (our $9 price target is set at a 0.9x estimated 3Q08-end tangible book value).”

And if the stock keeps falling, said Randy Frederick, director of trading and derivatives at Charles Schwab & Co. (SCHW:Charles Schwab & Co., Inc Last: 16.69+2.10+14.39% 4:00pm 11/21/2008), “people will stop wanting to do business with Citi. They’ll perceive the company’s position as being reflected in its stock price, regardless of what management says.”

Selling some of Citigroup’s units, particularly brokerage arm Smith Barney, could raise capital and also reposition the firm as a leaner outfit.

Sense of inevitability
“There’s value in those units,” said Anthony Sabino, professor at St. John’s University, speaking about Citigoup’s subsidiary businesses. Sabino believes that events will force Pandit’s hand.

“The essence of Citi’s problem is diversity and incompatibility of its business lines, but that’s also its saving grace because it can just sell them off,” said Sabino.

In the current market, it stands to reason that there aren’t too many candidates prepared to step up and buy. But Sabino said that the pricing could be so attractive that someone will bite.

One problem with Citigrooup being sold whole is that many of the rival banks that would be best placed to make a deal are still busy digesting other acquisitions.

So far this year, J.P. Morgan Chase & Co. (JPM:JPMorgan Chase & Co Last: 22.72-0.66-2.82% 4:02pm 11/21/2008) has picked up the remnants of Bear Stearns and Washington Mutual, Wells Fargo & Co. (WFC:Wells Fargo & Company Last: 21.76-0.77-3.42%
4:09pm 11/21/2008) has swallowed Wachovia Corp. and Bank of America Corp. (BAC:bank of america corporation com Last: 11.47+0.22+1.96% 4:02pm 11/21/2008) has agreed to buy Merrill Lynch & Co. (MER:Merrill Lynch & Co., Inc Last: 8.34+0.38+4.77% 4:00pm 11/21/2008).

And among international players, Barclays PLC (BCS:Barclays PLC Last: 8.18+0.81+10.99% 4:00pm 11/21/2008) is busy with its takeover of Lehman Brothers Holdings (LEHMQ:Lehman Brothers Holdings Inc Last: 0.030.00-13.89% 4:59pm 11/21/2008). Sabino suggested that HSBC (HBC:HSBC Hldgs Plc Last: 46.86+1.08+2.36% 4:03pm 11/21/2008) may have a strong enough position to launch a bid, while there has also even been unfounded talk surrounding a prospective merger with Goldman Sachs Group (GS:Goldman Sachs Group, Inc Last: 53.31+1.31+2.52% 4:00pm 11/21/2008).

Schwab’s Frederick doubts that Citi would be sold whole. “It’d be hard [for the parties] to come together on a price,” he said.
This is in part because of wariness about what toxic assets remain on Citi’s books. Nor would other banks be willing to trust Citi’s claims about the strength of its balance sheet.

Trust sorely lacking
“If you think back to every big bank that’s failed this year, they’ve all said, ‘We’re fine,’ right up until the end,” said Frederick. “It’s very difficult to believe those kinds of statements from financial institutions.

Call it, perhaps, the curse of Dick Fuld.
Fuld, the ex-chief executive of Lehman, was protesting his firm’s financial health almost until the moment it filed for bankruptcy.
And there are still veterans of Bear Stearns who argue the firm could have survived if it hadn’t been plagued by negative market sentiment — talk that echoes Pandit’s claims on Friday morning about the disconnect between Citigroup’s stock price and its strong capital position. See full story

D.C., in or out?
Frederick believes it’s “very possible” that Washington will end up having to get involved, though not on the same scale as the AIG bailout, which so far is estimated to cost about $150 billion.

He said a something like a 25% stake in Citigroup could be enough to reassure the market. For all the talk of moral hazard, the government is aware of how Lehman’s bankruptcy hit the market and would be “very hesitant” to allow another financial pillar to fail, he said.

In Friday’s Wall Street Journal, Heard on the Street reporter Peter Eavis suggested that the government needs to be ready to jump in to save Citigroup. Brad DeLong, professor at the University of California, Berkeley, took the notion even further, calling for a Swedish-style government takeover.

“Time to do it. Swedish model. No more of this ‘preferred stock capital injection’ business. Common stock. And with commitment comes control,” said DeLong on his Web site.

Sam Mamudi is a reporter for MarketWatch in New York.

<---End of Quote--->

Related Article-1:
Citi’s CEO Pandit said to reject Smith Barney sale

Earlier reports had Citigroup board considering sale of all or parts of firm

By Simon Kennedy, MarketWatch
Last update: 4:32 p.m. EST Nov. 21, 2008

NEW YORK (MarketWatch) — Shares of Citigroup Inc. fell as much 24% Friday, skidding below the $4 mark based on news reports that Chief Executive Vikram Pandit has blamed “rumormongering” for the collapse of its stock price, and that he has ruled out a sale of the firm’s Smith Barney investment-banking business.

The shares recovered modestly before closing off 20%, at $3.77.

The report emerged after Pandit spoke with top bank staff on a conference call, during which he said that he wants to keep the embattled company (C:Citigroup, Inc Lasst: 3.77-0.93-19.79% 4:01pm 11/21/2008) together rather than breaking it up, U.K. newspaper the Telegraph reported Friday.

The Telegraph also said Pandit told participants that the bank has a strong capital position and is not facing any funding crisis.

Earlier reports said Citigroup’s board of directors was meeting Friday to consider auctioning off parts of the bank, or even the entire firm.

The global credit-card division and its transaction-services arm could be put on the block, according to The Wall Street Journal.
Citi shares, which rose 15% in preopen trading, quickly surrendered their gains as word of Pandit’s comments reached the market.

The board’s talks are at a preliminary stage and don’t signal a change in management’s stance that the company has ample funding and strategic direction, The Wall Street Journal said, citing people familiar with the matter.

Citi shares have now fallen more than 50% this week alone, dragged lower as a slew of negative news coincided with U.S. economic worries and a disastrous week for selling equities in general.

A bank spokesman said Citigroup had no comment on the reported meetings.

The 26% decline in Citi’s stock on Thursday — it’s worst-ever single-day fall — has left officials at the bank considering scenarios that would have been unthinkable a few weeks earlier, the Journal reported.

Writing to clients this morning, Deutsche Bank analyst Mike Mayo said: “We believe that there is fundamental value at Citigroup that justifies a $9 price target.”

Cracks in the commercial real-estate market, the Treasury’s recent decision against buying troubled assets from banks and Citigroup’s own move to take on around $17 billion of assets from a subsidiary fund have all hurt the blue-chip stock.

A vote of support Thursday from Saudi Arabian investor Prince Alwaleed, who said he will increase his holdings in Citi back to 5%, couldn’t stem the decline in the stock price. See full story.

On another front, Citigroup along with other banks has been lobbying for further action from lawmakers, including asking the Securities and Exchange Commission, to reinstate a ban on the short-selling of financial stocks, the Journal reported.

Late Thursday, SEC chief Christopher Cox announced that he would hold a conference call with international regulators on Monday to discuss short selling and other issues.

‘No reason’ for failure
Ladenburg Thalmann analyst Richard Bove said he had received numerous calls asking if Citigroup was about to fail, but added that he could “see no reason why this should happen.”

Bove wrote to clients late Thursday that the bank’s liabilities are backstopped by numerous programs, including its access to the Federal Reserve discount window, $780 billion of deposits primarily from overseas and its ability to sell commercial paper to the Fed.

“It would take a depression every bit as large and long as the 1930s debacle to shake this company’s viability,” he said.

“The current decline in the stock price is reflecting a series of fears related to loans and security values that cannot be actualized without a severe setback in the economy and a very rapid increase in interest rates,” according to Bove.

Simon Kennedy is the City correspondent for MarketWatch in London.

Nov 18, 9:49 PM EST

By JULIE HIRSCHFELD DAVIS
Associated Press Writer
News-press.com

WASHINGTON (AP) — Detroit’s Big Three automakers pleaded with a reluctant Congress Tuesday for a $25 billion lifeline to save the once-proud titans of U.S. industry, pointedly warning of a national economic catastrophe should they collapse.

Millions of layoffs would follow their demise, they said, as damaging effects rippled across an already-faltering economy.

But the new rescue plan appeared stalled on Capitol Hill, opposed by the Bush administration and Republicans in Congress who don’t want to dip into the Treasury Department’s $700 billion financial bailout program to come up with the $25 billion in loans.

Rank and file Republicans and Democrats from states heavily impacted by the auto industry worked behind the scenes trying to hammer out a compromise that could speed some aid to the automakers before year’s end. But it was an uphill fight.

“Our industry … needs a bridge to span the financial chasm that has opened up before us,” General Motors Corp. CEO Rick Wagoner told the Senate Banking Committee. He blamed the industry’s predicament not on management failures but on the deepening global financial crisis.

And Robert Nardelli, CEO of Chrysler LLC, told the panel the bailout would be “the least costly alternative” when compared with damage from bankruptcy.

Under questioning from skeptical senators, both said they’d be willing to consider slashing their salaries to $1 to show a willingness to sacrifice for federal help.

Sympathy for the industry was sparse, however, with bailout fatigue dominating Capitol Hill. Lawmakers bristled with pent-up criticism of the auto industry, and questioned whether a stopgap loan would really cure what ails the companies.

At the start of a more than four hour grilling before his committee, Sen. Christopher Dodd, D-Conn., told the leaders of GM, Chrysler and Ford Motor Co. that the industry was “seeking treatments for wounds that I believe to a large extent were self-inflicted.”

“You’re asking an awful lot,” Dodd, the panel chairman, said at the close of the session. “I’d like to tell that you in the next couple of days this is going to happen. I don’t think it is.”

Sen. Mike Enzi, R-Wyo., complained that the larger financial crisis “is not the only reason why the domestic auto industry is in trouble.”

He cited “inefficient production” and “costly labor agreements” that put the U.S. automakers at a disadvantage to foreign companies.

Ford CEO Alan Mulally told senators the auto industry was “a pillar of our economy.”

GM’s Wagoner refuted criticism that his company was not keeping pace with the times, saying it had been on the brink of a turnaround before the financial meltdown hit, reducing sales to the lowest per-capita level since World War II.

Failure of the auto industry “would be catastrophic,” he said, resulting in three million jobs lost within the first year and “economic devastation (that) would far exceed the government support that our industry needs to weather the current crisis.”

Chrysler’s Nardelli sought to respond to those who suggest the automakers seek Chapter 11 bankruptcy protection, as have some airlines that later emerged restructured and leaner.

“We just cannot be confident that we will be able to successfully emerge from bankruptcy,” Nardelli said.

Chrysler was bailed out by the federal government once before, in 1979, with $1.2 billion in loan guarantees. The company repaid the loan, plus interest, ahead of schedule. Back then, former Chrysler CEO Lee Iacocca reduced his salary to $1.

Under questioning from Sen. Jon Tester, D-Mont., Mulally didn’t join the other two executives in saying he’d do the same now.

“I sure respect the intent of it, but the most important thing is that we not degrade our ability to be competitive and deliver this plan,” Mulally said.

Joining the Big Three CEOs, Ron Gettelfinger, president of the United Auto Workers union, said the emergency loans were important for the survival of the industry and union jobs. He said the UAW recognized that “in order for these companies to be competitive, we had to make tough calls” in labor concessions.

“My sense is that nothing’s going to happen this week,” Sen. Bob Corker, R-Tenn., said at Tuesday’s hearing.

Democratic Sen. Max Baucus of Montana said he also smelled a flameout. “I sense that nothing is going to be passed,” the Finance Committee chairman said.

Earlier, House Majority Leader Steny Hoyer said Congress might have to return in December - rather than adjourning for the year this week, as expected - to consider an auto bailout.

“Dealing with the automobile crisis is a pressing need. We are talking about a lot of people … and a great consequence to our economy,” said Hoyer, D-Md.

The financial situation for the automakers grows more precarious by the day. Cash-strapped GM said it will delay reimbursing its dealers for rebates and other sales incentives and could run out of cash by year’s end without government aid.

In the Senate, Democrats discussed but rejected the option favored by the White House and GOP lawmakers to let the auto industry use a $25 billion loan program created by Congress in September - designed to help the companies develop more fuel-efficient vehicles - to tide them over financially until President-elect Barack Obama takes office.

“There is a way to do this,” said Sen. Mitch McConnell, R-Ky., the minority leader.

House Speaker Nancy Pelosi, D-Calif., and other senior Democrats, who count environmental groups among their strongest supporters, have vehemently opposed that approach because it would divert federal money that was supposed to go toward the development of vehicles that use less gasoline.

“I don’t think that’s going very far in our caucus,” said Senate Majority Leader Harry Reid, D-Nev.

Instead, they want to draw the $25 billion directly from the $700 billion Wall Street bailout - bringing the government’s total aid to the car companies to $50 billion.

A Senate vote on that plan, which would also extend jobless benefits, could come as early as Thursday, but it currently lacks the support to advance. Treasury Secretary Henry Paulson renewed the administration’s opposition on Tuesday.

Even the car companies’ strongest supporters conceded Tuesday that changing the terms of the fuel-efficiency loan program might be the only way to secure funding for them with Congress set to depart for the year and the firms in tough financial shape.

“If in the short run the only way we have to be able to get some immediate help is to take a portion of that, I would very reluctantly do that - but only because I believe President-elect Obama is going to be focused on retooling and on a manufacturing strategy next year,” said Sen. Debbie Stabenow, D-Mich.

The White House said the government shouldn’t send any more money to the struggling auto industry on top of the already-approved loans.

“We don’t think that taxpayers should be asked to throw money at a company that can’t prove that it has a long-term path for success,” said White House Press Secretary Dana Perino.

Associated Press Writers Ken Thomas and Tom Raum contributed to this story.

© 2008 The Associated Press. All rights reserved.

18 Nov 2008 13:24

PANAMA CITY, Nov 18 (Reuters) - Latin America’s banks should brace themselves for more loan defaults as a slowdown caused by the global credit crisis hits the region, Peru’s banking superintendent warned on Tuesday.

Banks in Latin America have escaped the worst of the liquidity crisis so far, but Peruvian banking superintendent Felipe Tam told executives at a conference in Panama City they would be hit by an approaching economic slump as demand for exports falls.

“We are going to see a recession, because the price of our primary materials is falling and this will lead to unemployment for exactly for those people who we are lending to,” he said, adding, “Non-performing loans will rise, so we have to be very well capitalized.”

Banks in the region, many of them controlled by foreign players, are generally well capitalized and have not dabbled in areas like subprime lending, which helped spark the crisis in the United States.

Latin American banks in recent years have focused on meeting consumers’ pent up demand for credit to buy homes, cars and other big-ticket items. (Reporting by Andrew Beatty) Keywords: BANKS/LATAM

COPYRIGHT: © 2000 Reuters Limited. All rights reserved.

By MARTIN CRUTSINGER – 3 hours ago

WASHINGTON (AP) — Another round of massive layoffs at Citigroup and more bad financial news Monday led investors to shrug off the lengthy action plan from world leaders designed to address a sagging global economy.

Citigroup said it will cut about 53,000 more jobs in coming quarters as the banking giant struggles to deal with massive losses from deteriorating debt.

The global action plan was produced at a weekend meeting of leaders of the Group of 20, which included the world’s wealthiest countries such as the U.S., Japan, Germany, Britain and France plus emerging powers such as China, Russia, Brazil and India.

Analysts say it will take more than one meeting to turn the tide for a global economy undergoing its worst upheavals in decades.

“To put it harshly, there is little point in trying to figure out ways to prevent a disease once a patient is sick,” Credit Suisse Japan analyst Shinichi Ichikawa said in a report released Monday. “The just-concluded summit came up with no specific prescription to alleviate the effects of the most serious international financial crisis.”

T.J. Bond, a Merrill Lynch economist in Hong Kong, said some investors were disappointed there was no explicit announcement of coordinated fiscal stimulus measures.

European analysts said the main winners were developing economies such as China and India, which have emerged from it wielding more influence in global decision-making than they have until now.

But investors are worried that governments will not respond with enough force and speed to combat what is shaping up to be a severe global downturn. In midday trading, the Dow Jones industrial average was down about 20 points, and major indexes in Britain, Germany and France were all down.

Earlier, Asian markets closed relatively flat despite confirmation Japan slipped into recession in the third quarter of the year for the first time since 2001. Japan’s benchmark Nikkei 225 stock average closed slightly higher, and Hong Kong’s Hang Seng index gave up early gains to dip 0.1 percent.

The Federal Reserve reported Monday that industrial output posted a better-than-expected rebound in October of 1.3 percent, but that increase came after the biggest one-month drop in production in more than 60 years. According to revised figures, factory output fell by 3.7 percent in September, the steepest plunge since a 5 percent drop in February 1946.

Both September and October were influenced by the hurricanes along the Gulf Coast and the strike at airplane manufacturer Boeing Co. Without those factors, the Fed estimated that production would have fallen by about 0.6 percent in both months.

Also Monday, the National Association for Business Economics released a somber new forecast projecting that the overall U.S. economy, which shrank at an annual rate of 0.3 percent in the July-September period, would contract at a rate of 2.6 percent in the current October-December quarter.

Just a month ago the group predicted the economy would post a 0.1 percent GDP growth rate in the fourth quarter.

“Business economists became decidedly more pessimistic on the economic outlook for the next several quarters as a result of the intensification of credit market stresses,” said NABE President Chris Varvares, chief economist at Macroeconomic Advisers.

European stock markets traded modestly lower Monday following a mixed performance in Asia. Japan’s Nikkei index rose slightly, despite a report showing the second-straight quarterly decline in GDP — signaling a recession. Elsewhere, major indexes in Hong Kong, Britain, Germany and France all fell.

Still, C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington, said he would grade the weekend discussions in Washington a solid B, a far better mark he said than he has given many of the annual economic summits of the Group of Eight major industrial countries.

“They did a number of good things and came up with some solid principles to guide future discussions although I think it is going to take more than four months to reach major agreements,” he said.

The G-20 nations agreed to hold another leaders’ meeting before April 30, a little more than three months after President-elect Barack Obama takes office.

While the outgoing Bush administration stressed that Obama’s team had been fully briefed on the G-20 discussions, analysts suggested that with all the problems facing the U.S. economy at present, Obama may not be eager to wade into the intricate details of international finance as one of his first orders of business.

But German Chancellor Angela Merkel disagreed, saying she was hopeful an Obama administration will participate fully in the G-20 efforts.

“I have not the slightest doubt that we will be able to proceed along the way we set out today,” she told reporters at the conclusion of Saturday’s meeting. “This is a reasonable approach that the new president will surely support.”

Private analysts, however, noted that the G-20 joint statement papered over major disagreements between the countries. The Europeans, led by French President Nicolas Sarkozy, favor more government control over markets, while the U.S. position is that better, not more, regulation is needed.

Analysts said financial markets may be disappointed that the communique made only broad promises to “take whatever further actions are necessary” to stabilize the banking system and boost economic growth.

Some countries had hoped for numerical goals for increasing government spending by a certain percentage of a country’s gross domestic product. The Bush administration resisted such a commitment, mindful that the U.S. rescue actions already taken could push the federal budget deficit above $1 trillion in the current budget year.

However, Obama and Democrats in Congress have talked about the need for a second stimulus package. With the U.S. economy showing signs of a sharp downturn, Congress likely will approve further assistance.

The NABE panel of 50 top private forecasters said they expected the economy would shrink again in the first three months of next year, and they predicted the unemployment rate, currently at a 14-year high of 6.5 percent, would rise to 7.5 percent by the end of 2009.

By wide margins, the panel believed that the recession and severe financial crisis that began in the U.S. would engulf much of the global economy.

The NABE panel predicted that Britain and much of the rest of Europe, Japan, Canada and Mexico would all suffer recessions in coming months while China and India were expected to see slower growth but avoid outright contractions.

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