The Citigroup Deal is Lousy for America

The verdict on the Citigroup bailout is pretty much unanimous: its a terrible deal for America.


“A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more. Amazing how much damage the lame ducks can do in the time remaining.”

“This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened.”


“So far I’m not impressed”

“Note key element of the deal is that the Federal government will guarantee $300 billion of Citi assets, a much bigger number than had been leaked earlier, with a rather convoluted loss-sharing arrangement, but the bottom line is that Citi is at risk for at most $40 billion. Citi also gets a $20 billion equity injection, on slightly more onerous terms than the initial TARP investments, but still more favorable than Warren Buffett’s investment in Goldman. Oh, and it appears there will be NO management changes.”

“The third goal should have been getting a good deal for the U.S. taxpayer, but instead Citi got the same generous terms as the original recapitalization. 8% is still less than the 10% Buffett got from Goldman; a cap on dividends is a nice touch but shouldn’t affect the value of equity any. By refusing to ask for convertible shares, the government achieved its goal of not diluting shareholders and limiting its influence over the bank. And an exercise price of $10.61 for the warrants? It is justified as the average closing price for the preceding 20 days, but basically that amounts to substituting what people really would like to believe the stock is worth for what it really is worth ($3.77).”

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  • http://www.blogger.com/profile/05678841372682695630 Joseph Hutchison

    What we’re seeing is the Hole in the Wall Street Gang stealing as much as possible before their puppet president has to leave office, no doubt with bags of taxpayer money concealed under his poncho.

  • http://www.blogger.com/profile/01016032974667786252 jude cowell

    Amen to that, Joseph Hutchison. And no one is stopping them so they’re in on it too.

  • http://www.blogger.com/profile/08656600074436057305 GT

    Given that C’s market cap on Friday was about $20.7 billion, how come the Government didn’t just pony up the extra $0.7b and buy the thing outright?They’ve got about as much chance of getting an 8% dividend on the new, dilutive stock as I have of knocking the moon out of the sky with a fart.This, plus AIG, FNM and FRE, rank up there with Buffet’s stake in Goldman Sachs as the dumbest investments of the century.Lenin must be giggling…CheerioGTGT’s Market Rant

  • http://www.blogger.com/profile/13387222459138336071 eric

    Citi just got an injection to buy its owns stocks and raise the various markets that comprise it.Smoke and mirrors.Don’t buy stocks or anything else you can’t afford.Live within your means and starve the parasites.

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