Who in their right mind could be satisfied with the boards of Citigroup or Bank of America

TO BE NOTED: From Bloomberg:

"Bank of America Owners Declare War on Taxpayers: Jonathan Weil

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Commentary by Jonathan Weil

May 1 (Bloomberg) -- The votes are in at Bank of America Corp. And the message to America is unmistakable: It’s them versus us.

The big news from Bank of America’s annual meeting this week was that a majority of shareholders are content with the performance of the company’s directors. All 18 of them, including Chief Executive Officer Kenneth Lewis, were re-elected with at least 63 percent of the votes cast. All except Lewis and lead director Temple Sloan got more than 72 percent.

This outpouring of satisfaction leads to a question surely on many good citizens’ minds: What in heaven’s name could the geniuses who voted for these people have been thinking?

The same goes for the shareholders who cast their ballots last week to re-elect all of Citigroup Inc.’s directors, each with more than 70 percent of the vote. Even Citigroup’s CEO, Vikram Pandit, got a decisive majority.

Almost two years into America’s great financial fondue, we still haven’t tamed our nation’s systemically dangerous banks. That’s not just the fault of captive banking regulators, or cash-craving congressmen, or willfully blind credit-rating companies, or the people who run the banks. The shareholders who own the banks are just as much to blame.

Keep the Bums

Sure, Lewis is now out as chairman of Bank of America’s board, after a bare 50.3 percent of votes were cast in favor of splitting the bank’s chairman and CEO positions. Yet far from a revolt, this was more like throwing the bums in. Lewis’s replacement as chairman, Morehouse College President Emeritus Walter Massey, has been on the bank’s board since 1998. Doing what, exactly, is far from apparent.

These votes were the best chance we had for a taste of accountability at Citigroup or Bank of America, which together have received $90 billion of taxpayer bailout money. The banks’ shareholders rose to the challenge by flipping us all the bird.

It’s not as if anyone was asking them to place the country’s needs ahead of their own. No, the worst part is that so many of them were too lazy or stupid to vote in their own best interests.

Who in their right mind could be satisfied with the boards of Citigroup or Bank of America, which in the past year have destroyed most of their stock-market value, crawled like beggars in search of government rescue money, and turned their brand names into household curse words?

Don’t Rock Boat

There are some logical, if cynical, explanations. Perhaps some shareholders feel fortunate to have anything left of their stakes at all, and decided to reward the banks’ directors for driving such hard bargains with the taxpayers. Or maybe a bunch of institutional investors that do business with the banks, such as brokerage firms that vote their customers’ proxies, chose not to risk retaliation by rocking the boat.

The good-governance pundits say we should take note of all the votes withheld from the companies’ board members as a sign of restlessness. Charles Elson, the oft-quoted director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, told a Bloomberg News reporter that the size of the opposition to Lewis and Sloan “symbolizes the deep level of discontent with the management of the company” and that shareholder activists had “made their point.”

The main point I see, however, is that the majority of these banks’ shareholders need to have their heads examined.

They have to know they face even more dilution of their stakes because the banks probably don’t have enough capital to avoid returning to the bailout trough. And Bank of America’s shareholders must remember how Lewis’s board royally hosed them in December, by not disclosing the 11-figure losses at Merrill Lynch & Co. until after the purchase of Merrill was completed.

Or maybe not. I’m all for shareholder rights and protecting investors from wayward managers and boards. This time, however, the investors needing protection are the American people, who seem destined to become the majority owners of these banks.

The rest of the shareholders at Citigroup and Bank of America are lucky they haven’t been wiped out already. They certainly deserve to be now.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net"

strategy announced in January that would separate Citigroup’s main banking business from its other assets

TO BE NOTED: From the NY Times:

"Citi Will Sell Japan Units, Bolstering Its Capital

By HIROKO TABUCHI

TOKYO — Citigroup said on Friday that it would sell its Japanese brokerage and investment banking units for $5.56 billion, securing much-needed capital before results expected next week from a government “stress test” of its financial health.

Citigroup, the recipient of about $45 billion in bailout money, will sell its Japanese securities arm and parts of its investment banking business to Sumitomo Mitsui Financial Group.

The overall transaction, including shareholdings and retained debt payments, is valued at 774.5 billion yen ($7.8 billion), Citigroup and Sumitomo Mitsui said. Citigroup said it would realize a loss of $200 million on the transaction, which would generate $2.5 billion in tangible common equity, a measure of financial health.

Citigroup’s sale of important businesses in Japan would reverse an ambitious, yet short-lived, push into the country. Just two years ago, the bank, based in New York, had spent about 1.6 trillion yen to acquire the Nikko Cordial franchise.

But Citigroup has been scrambling to raise capital after a year of crippling losses that has led to three bailouts, the last of which gave the government a 36 percent stake in the bank.

Vikram S. Pandit, Citigroup’s chief executive, called the sale “another step in the execution” of a strategy announced in January that would separate Citigroup’s main banking business from its other assets.

Citigroup’s sale in Japan includes Nikko Cordial Securities, a large brokerage firm, and parts of Nikko Citigroup, the investment banking unit of Citigroup in Japan.

The transaction does not include Nikko Asset Management, which is expected to be sold separately. The sale also leaves out Citigroup’s consumer banking and credit card assets in Japan, which Citigroup says it will keep.

The deal comes as United States regulators prepare to disclose results of the stress tests, which are assessing the banks’ ability to withstand a further deterioration in the economy.

With its purchase, Sumitomo Mitsui hopes to close the gap with the top brokerage house in Japan, Nomura Holdings. Nomura bought some of the operations of the failed investment bank, Lehman Brothers, last year.

Sumitomo Mitsui invested $745 million in the British bank Barclays last year and has had capital ties with Goldman Sachs since 1986. The Japanese bank said Friday that it would also work with Citigroup in the securities brokerage, sales and trading businesses.

Japanese banks have been looking to expand globally and increase fee revenue amid sluggish corporate activity at home. But losses on recent investments, as well as mounting bad loans and write-downs in the value of shareholdings, have battered their balance sheets.

On Friday, the biggest bank in Japan, Mitsubishi UFJ, said it expected to swing to a 260 billion yen loss for the year ending next March, compared with a previous forecast of a 50 billion yen profit. Mitsubishi UFJ, which invested $9 billion in Morgan Stanley last year, said its equities losses were likely to come to 520 billion yen.

Sumitomo Mitsui booked a loss of 390 billion yen in the year ended March 31. The bank said it was assessing the effects of the Citigroup deal on its finances."

senior officials at the Federal Deposit Insurance Corporation privately discussed who might replace Mr Pandit if the bank needed more government aid

TO BE NOTED: From the FT:

"Fresh questions on Pandit’s future at Citi

By Francesco Guerrera and Joanna Chung in New York

Published: April 20 2009 23:38 | Last updated: April 20 2009 23:45

Vikram Pandit, Citigroup’s chief executive, will on Tuesday strive to convince investors that the company is on the road to recovery amid fresh questions over his future at the financial group.

Ahead of Citi’s annual investor meeting, it has emerged that senior officials at the Federal Deposit Insurance Corporation privately discussed who might replace Mr Pandit if the bank needed more government aid.

“It is unthinkable that Vikram could stay on if Citi requires more federal funds,” said a person familiar with the matter. “It is prudent to be thinking about different scenarios.”

The FDIC is only one of the regulators which has a say on whether Mr Pandit steps down if the government bails out Citi for the fourth time in six months following completion of the “stress test” of its health.

Any decision on Citi’s leadership will be led by the Treasury, which is about to take a 36 per cent stake in the company and will sanction further capital injections.

The Federal Reserve and the Office of the Comptroller of the Currency, which regulate national banks, will also have to bless top management changes.

People close to the situation said FDIC officials had discussed successors to Mr Pandit, who became chief executive in December 2007.

They include Ned Kelly, chief financial officer, Gary Crittenden, his predecessor and chairman of the division containing Citi’s non-core assets, and one of Citi’s new board members.

The new directors are Jerry Grundhofer, former chief executive of US Bancorp ; Michael O’Neill, former head of the Bank of Hawaii; Anthony Santomero, former head of the Philadelphia Federal Reserve; and William Thompson, former co-head of bond group Pacific Investment Management Co .

The FDIC and the other agencies declined to comment.

In a statement, Citi said: “Our recent quarterly results reveal the underlying strength of the franchise and Mr Pandit’s strategy at work to restore Citi to profitability.”

Citi shares have lost nearly 90 per cent of their value in the past year, following more than $50bn in writedowns and losses.

After closing at $1.02 in March, the stocks rallied, touching $4 last week. However, since Citi announced results on Friday, the shares have fallen 19 per cent, closing at $2.94 in New York.

Additional reporting by Julie MacIntosh in New York"

This is what Warren Buffett was referring to when he talked about the advantage of being a financial crippled in this economy.

From Clusterstock:

"MARKETS SOAR (C, MSFT)

Joe Weisenthal|Mar. 10, 2009, 4:00 PM|15

Tags: Investing, Stock Market

C Mar 10 2009, 05:55 PM EDT

1.45	Change	% Change
	+0.40	+38.10%

MSFT Mar 10 2009, 05:40 PM EDT

16.48	Change	% Change
	+1.33	+8.78%

After days and days of unending pain and false hopes of a bottom, the market finally roared higher today. If nothing else, it was a nice one-day respite from the steady drip of a melting economy. Of course, throughout this down-cycle we've had several monster rallies and they've never amounted to anything.

The big winners: The banks. After Vikram Pandit's memo suggesting that Citigroup (C) was operating at a profit, they all roared higher. Citi itself was up 36%.

Other big winners: Big tech. Lost in all the news was Microsoft's (MSFT) announced dividend hike to $.13 per quarter from $.11. It's a modest amount nominally, but given where the stock was trading, it now pays a pretty juicy 3.4% dividend. It ended up over 8%, and the NASDAQ as a whole was up over 7%.

The final levels on the indices: The Dow ended up 379.44, to 6926.49, the S&P 500 added 43.07, to close at 719.60 and the NASDAQ gained 89.64, finishing at 1,358.28.

Clearly the market was due for some kind of vicious move upwards. Eventually the easy trade -- shorting the banks day in and day out -- was going to come back and bite the traders in the ass.

None of this means the market is "back" however, and there's even a negative spin on the Citi news, which is that the bank is profitable merely because of the massive amount of help its received from the govermnent, lowering its cost of capital, potentially creating a competitive advantage over sound, healthy institutions. This is what Warren Buffett was referring to when he talked about the advantage of being a financial crippled in this economy."

Me:

Don the libertarian Democrat (URL) said:

Mar. 10, 6:01 PM

"None of this means the market is "back" however, and there's even a negative spin on the Citi news, which is that the bank is profitable merely because of the massive amount of help its received from the govermnent, lowering its cost of capital, potentially creating a competitive advantage over sound, healthy institutions. This is what Warren Buffett was referring to when he talked about the advantage of being a financial crippled in this economy."

That's a very good point. So, when John Hempton quotes this:

http://brontecapital.blogspot.com/2009/03/fools-seldom-differ.html

"BUFFETT: Yeah, and interestingly enough, they don't need to supply the banks, in my view, with lots of capital. They need to let almost all of--I mean, the right prescription with most of the banks is just let them pay very little in the way of dividends and build up capital for awhile, and they will build up a lot of capital. The government has needed to say--what the government needs to say is nobody's going to lose a dime by having their deposits in these banks. They're going to make lots of money with the deposits."

Buffett is making a point about how government help hurts private investments, like his. Right?

Also, the amount of the profit wasn't announced, was it?

it means that the hope that currently troubled banks could earn their way out of trouble may not be entirely delusional

From Justin Fox:

"Extra! Extra! Citigroup may be profitable!

Posted by Justin Fox | Comments (1) | Permalink | Trackbacks (0) | Email This

Citigroup CEO Vikram Pandit says that "we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007." This was in a pep-talky memo to employees, and we've all learned to be dubious of what banks claim are profits. But with the federal government throwing money at them (not so much through TARP as through the various Fed liquidity programs) and competition in the lending business from nonbanks dramatically reduced, it only makes sense that banks' profits would start improving.

The key is something called net interest margin—the difference between what the banks pay for funding and what they charge on loans. It's been on a downward trend since the mid-1990s—and for bigger banks in particular it's been absolutely plummeting since 2002. The reason, contends fixed income analyst David Goldman, is:

Because banks used loans as a loss leader to get more profitable fee business. The foolish investor community thought that fee business was less cyclical than lending and rewarded bank equity performance for this ruse.

And because banks had locked in lots of big corporate credit lines at extremely generous terms, the interest margin—which normally rises during recessions—continued to decline in 2008. That's got to turn at some point, and early indications are that this quarter may be that point. The bottom-line impact could still be wiped out by further declines in the value of banks' existing assets. And of course any improvement in bank profits comes straight out of the hides of businesses and consumers. But it means that the hope that currently troubled banks could earn their way out of trouble may not be entirely delusional."

Me:

1. donthelibertariandemocrat Says:
   Tuesday, March 10, 2009 at 11:39 am

   That was an interesting post, and I especially liked this quote:

   "It's time to go back to old-fashioned banking, if there are any banks left standing to do so."

   And this:

   “For the banks, this is unlike all other recessions because it hasn't shown any relief in terms of net interest margin,” Goldman said. “The poor performance of net interest margin, which is a critical measure of bank profitability, is a stern warning to the banks that they have to take a much more old-fashioned approach to lending.”

   Companies paid an average of 8 to 10 basis points for access to untapped credit lines, Goldman said in an October report written for research firm Laffer Associates. A basis point is 0.01 percentage point.

   “They gave away these revolving credit deals like party favors,” Goldman said. “They should be changing those deals. If banks have to lend money at their own cost of funds, we'll never get out of this mess.”

   Thanks for focusing so much attention on what Citi is actually doing and up against.

Listen to this article. Powered by Odiogo.com Vik is angry and he is not gonna take it anymore.

From Zero Hedge:

"Vikram Talks Up His Book

Posted by Tyler Durden at 8:56 AM

Vik is angry and he is not gonna take it anymore. All those jokes about Citi, 99c stores, the cost of a roll of toiler paper, etc. have incensed the former Old Lane founder to the point where he... will write a letter to describe just how incensed he is. Without further ado we present Vikram's missive to his dear citi colleagues, entitled "Capital Strength and Earnings Power".

Publish at Scribd or explore others: Short Stories Creative Writing career letter"

Me:

Don said...

Yes. I think he said that they made $19 Billion, and there was a profit. Can you tell me if he said what the profit was?

Don the libertarian Democrat

PS I also wonder how they're going to value Banamex, Monex, etc., in these stress tests. Do you know?

March 10, 2009 10:33 AM

"They should embrace the inevitable and just nationalize the two banks."

At least Felix Salmon agrees with me:

"Nationalize Citigroup and Bank of America

Both Citigroup and Bank of America are down more than 20% in early trade today, and I imagine that Hank Paulson and Tim Geithner are starting work on yet another weekend deal of some description, since at this rate it seems that neither institution is capable of surviving in its present form much longer. They should embrace the inevitable and just nationalize the two banks.( I AGREE )

Any deal will be necessarily complicated by the fact that Paulson dragged his heels when it came to requesting the second tranche of TARP funds, even after he blew through the first $350 billion in no time. As a result, it's far from clear what money Treasury can use to shore up two of America's most systemically-important financial institutions.

On the other hand, this isn't a bank run( TRUE ): Citi and BofA aren't suffering from liquidity problems. They have all the liquidity they need, thanks to the Fed. The problem is one of solvency: the equity markets simply don't believe that the banks' assets are worth more than their liabilities.( THAT'S WHY YOU NEED TOTAL GOVERNMENT GUARANTEES, INCLUDING CONTROL, IN A CALLING RUN )

I can't see a solution to this problem short of nationalizing both Citi and BofA, and summarily firing the hapless Vikram Pandit along with the overambitious Ken Lewis. Lewis thought he could buy his way out of trouble, by acquiring Merrill Lynch; instead, he was simply tying his own already-troubled institution to an even more troubled institution. Pandit, it's worth noting, tried the same hail-Mary technique, when he put together a deal to buy Wachovia, but that didn't last long.

Citigroup, at $3.50 a share, simply doesn't have the time to implement its new plan to get smaller slowly. And Bank of America, at $7.75 a share, doesn't have the capital needed to absorb Merrill Lynch. Both are now trading at option value: on the hope, essentially, that somehow equity holders won't be wiped out entirely. But they should indeed be wiped out, as part of a nationalization, along with preferred shareholders, including the government( I AGREE. BAGEHOT'S PRINCIPLES ). TARP will show an immediate loss on its investments, which will serve as a salutary reminder for whoever's in charge of disbursing the second tranche.

Nationalization is a messy solution, and one which will make no one happy. But it's better than desperately trying to kick the ball down the field until the banks come back in a few weeks for even more money. If we've learned anything from the last Citi bailout, it's that small interventions don't work( HYBRIDS DON'T WORK EITHER. ). What's needed now is a complete revamp of both banks' capital structures, and a brand-new owner."

This has been my predicted outcome from the beginning.

"top brass will get paid based on something having to do with exotic metrics like performance and profitability"

A pretty funny and apt post from Clusterstock:

"Citi (C) Execs Pay To Be Based On Something Called "Performance" (C)

Joe Weisenthal | Dec 31, 08 3:38 PM

Citigroup (C) is set to announce a very bizarre compensation scheme indeed, according to CNBC. Details are sketchy, but it sounds as though top brass will get paid based on something having to do with exotic metrics like performance and profitability. We'll have to wait to learn more, but get this, if the firm's fortunes continue to deteriorate, then execs may get reduced pay. Odd, right?( IT'S UNHEARD OF! )

The plan calls for Citi's most senior executives, including the CEO, to take the biggest hits in compensation when the firm's bottom line suffers. Senior executives will receive much of their future cash and stock bonuses in a deferred fashion that is "vested" in three years time when the executive can claim ownership to the money.

The plan will also feature a clawback provision where the firm can recoup money from top executives if the performance of the firm sours after a big payday, in addition the top five executives at the firm will receive no severance if and when they leave.

Citigroup officials say the plan was developed internally by Pandit himself, but they confirm that they have been discussing executive compensation reforms with officials in the federal government, which have been increasingly more involved in Citigroup's operations since the big bank asked for its most recent bailout.

Citi isn't the first firm, where something's gotten in the water. Morgan Stanley (MS) has also announced a bonus scheme that allows for clawbacks. Again, it all seems to be based on this idea that pay should somehow reflect how well one did at their job this year. Developing..."

I wonder how long this will last?

"The most extreme (and probably effective) solution would be a full guarantee of all sorts of bank debt. "

Bronte Capital gives us some interesting insights into Citi and other matters. You need to follow his whole post, so I'm just going to do what every sensible person does and quote the sections that buttress my own arguments:

"Now the problem is that no matter how many times Pandit says that Citigroup is well capitalised nobody will believe him. In answer to the Brad DeLong question – the company told lies about its mortgage book – which compounded the lies about the dodgy CDO product they sold. The lies about the mortgage book totalled $20 billion on say $43 billion of optimistically valued assets – and those lies reduced the value of Citigroup by $200 billion because they removed the trust in Citigroup.

It is one of those ironic things that when financial institutions lied in 2006 the market seemed to believe them. When they tell the truth now, nobody will listen. "

I find this an important point. Right now, we're in an inverse universe from just a year or so ago, where exuberance has become panic, overly positive credit ratings have become overly conservative, etc. Citi, I contend, didn't really need to be bailed out, but, given the current mood, it became inevitable. After all, as I've said, it was implicitly guaranteed.

"The most extreme (and probably effective) solution would be a full guarantee of all sorts of bank debt. The problem of course is that is hugely risky for the taxpayer. My view – and I think the only way in which such a guarantee is viable – would be that if the taxpayer takes the risk they should also get the upside. That is full nationalisation. The advantage of full nationalisation is that since the system is actually solvent (but illiquid) the government will make a profit out of it. That is fine. Take the risk – make a profit – it’s the capitalist way. Incidentally the Sheila Bair approach of confiscation from the equity holders and subordinate debt holders works fine in this scenario. Indeed the sub-debt holders should wear it – but they will still be willing to lend again because they will be lending again to the government. In a full nationalisation I see no reason for Sheila Bair to resign. (Her tenure in that position would not threaten the financial system.)

I suspect that wholesale nationalisation is the cheapest (and most sure) way to end the financial crisis. But it would be difficult to find a Deputy Secretary of the Treasury for Citigroup (and Bank of America, JPM etc). Still as I think the system is eventually solvent if the government nationalised pretty well the whole system as it failed then the government would make a shocking profit. It would not be the first time – Norway made such a profit.

But I am not sure that the American politic is ready for a wholesale nationalisation of the financial system. Indeed they are determined it seems not to control financial institutions. If you are not convinced of that see the Deal Professor’s wonderful piece on who controls AIG."

This was my position. Paradoxically, but I think that it's becoming obviously more clear, this would have been cheaper, safer, and would have led to the government being removed from this ownership sooner. Why not a free market plan? Because the people with the money don't believe in it, and would have melted into thin air at the thought of not having a government intervention. With all do respect to Casey Mulligan and Gary Becker, your theories are purely Economic in this case, not based on Political Economy and Politics.

"Robert Rubin racks his brain about how he would have done things differently. Well one thing he would have done differently is get Citigroup to remove the culture of obfuscation – the culture that allowed it to be perceived as if it were lying even when it was telling the truth. The problem is that even Robert Rubin doesn’t have enough uncashed integrity to save Citigroup. Even Robert Rubin. In a world where Berkshire credit default swaps are going skyward because people do not believe that Warren Buffett has no collateral requirement Robert Rubin’s reputation ain’t going to count for much. "

This is the final point I want to make. This is Political Economy, where even known wizards cannot overcome fear and aversion to risk, and point people towards the fundamentals. People don't behave like models in the real world in normal times, although it's close enough to make the models useful. In times like these, you're better off listening to philosophers and other odd ducks who specialize in the nature of Human Agency.

"That helped ignite the current panic, which was exacerbated by a drumbeat of bleak economic news."

From the WSJ story about the Citi deal:

"Citigroup has tried repeatedly to rid itself of its exposure to those assets -- and nearly hammered out a similar arrangement with the government nearly two months ago.

In late September, the company reached an agreement for a government-financed acquisition of Wachovia Corp. Under that planned deal, Citigroup and the government were going to divvy up the losses on $312 billion of assets, with Citigroup absorbing the first $30 billion in losses and the government shouldering the remainder.

Citigroup described that arrangement as intended to insulate it from Wachovia's risky mortgage assets. But Citigroup also would have been able to unload some of its own assets, according to people familiar with the matter.

That deal unraveled in less than a week, after Wells Fargo & Co. emerged with a higher bid that didn't require direct government backing. That deprived Citigroup not only of a way to dump its risky assets but also of a deep pool of deposits, which would have substantially strengthened its access to stable low-cost funding.

Shortly after the Wachovia deal fell apart, Citigroup pitched the idea to the government of it helping to protect the company against some of its losses. Citigroup executives argued that the government should help the company after Wachovia slipped away, according to a person familiar with the matter. But federal officials balked at the idea."

That's how the Wachovia deal impacted the current Citi problems.

"As recently as one month ago, Citigroup had hoped to be able to unload some of those assets to the U.S. government through its Troubled Asset Relief Program, according to people familiar with the bank's plans. But when Treasury Secretary Paulson earlier this month shelved plans to use TARP to purchase banks' bad assets, that option vanished."

This is interesting. TARP pulled the rug out from under Citi with the Wachovia deal, and TARP not buying toxic assets calcified the toxic assets market so Citi could get rid of some of its toxic assets. Maybe Paulson felt that he owed Citi.

"Last Monday, Mr. Pandit said in a meeting with employees that Citigroup was scrapping plans to try to sell about $80 billion in risky assets. Investors and analysts interpreted the move as a sign that Citigroup either was unable to sell the assets, or would have had to incur hefty losses in the process.

Two days later, Citigroup announced it was buying $17.4 billion in assets from its structured-investment vehicles -- complex entities whose holdings included risky mortgage-linked securities -- and faced a $1.1 billion loss due to their diminished values.

The back-to-back moves, coupled with existing fears about Citigroup's massive off-balance-sheet holdings, stoked investor fears that Citigroup could be swamped by toxic assets flooding back onto its books. That helped ignite the current panic, which was exacerbated by a drumbeat of bleak economic news."

I'm on record saying that this was a panic reaction, and not sensible, so I'm still not sure that this was necessary. I didn't doubt that the government would step in if it had to, but I'm not sure, absent panic, we'd have been in this position.

"Government officials could face requests from other banks for similar help shoring up their balance sheets. Banks, hedge funds, and private equity firms have urged Capitol Hill and government officials to restart the asset-purchase program in recent weeks.

"The problem is that other banks would want to get in line" for such government support, says Thomas B. Michaud, a vice chairman of investment bank Keefe, Bruyette & Woods Inc. "Is there enough money to do that?"

I think that we can guarantee this.

"it's still got the financial characteristics of a vaguely healthy bank. "

Lex in the FT says this about Citi:

"The simple problem is that Citi, like most banks, remains leveraged to the hilt. Worse, the market’s renewed focus on banks’ assets versus their tangible common equity renders the government’s injections of preferred stock redundant. This is perhaps unfair – preference shares do help to pay the bills. Citi maintains it can, with sound fundamentals, tough out the market’s frenzy, opting for inaction over a kneejerk move. The authorities’ assuming effective control through purchases of common stock is unlikely. An engineered carve-up is less so. Either way, the government is again singled out as the only party in a position to assuage fears. If action is required, it will be theirs."

This is a great assessment. Let's see what happens.

Here's Joe Weisenthal on Clusterstock:

"The market might believe that Citi can't survive the balance sheet writedowns in its future, but at the moment, it's still got the financial characteristics of a vaguely healthy bank. The catalyst here is the stock price, not a bank run."

This is what Lex is saying. But is the decline warranted, or a result of the fear and aversion from risk that is reaching a panic level, and crowding out reasoned analysis? I'm sensing the latter.

"It puts the Feds in an awkward spot, notes CNBC's Charlie Gasparino:

As of Saturday afternoon, the general consensus between officials from Citi and government officials from the US Treasury department and US Federal Reserve is that the government will not takeover Citigroup in the way it took control of AIG—by lending the firm massive amounts of money and in return assuming a huge equity position.

Government officials fear taking over Citigroup would create a precedent: Unlike AIG, Citigroup's balance sheet is relatively healthy, with relatively strong levels of capital particularly compared to most of its competitors.

Still, officials from the Treasury and Citigroup are unsure what it would take to restore confidence in the company, including a possible smaller capital injection or some sort of statement that Citigroup is financially sound.

For that reason, Citigroup officials are continuing to explore possible merger possibilities and a spin off of some of Citigroup's businesses, even as CEP Vikram Pandit publicly stated the sale of the firm's massive and coveted broker business, Smith Barney is off the table, these people say.

To see if there was any panic yet among Citi's retail banking customers, we checked in on the chatter at Twitter. So far, there's very little worrying (unlike the last days of WaMu), instead it's mainly people talking about the Somali Pirates taking over."

Boy do I agree. We're so afraid of risk, maybe we're worried that the Somali pirates will seize Citi and hold it for ransom.

As I said in the comments:

Don the libertarian Democrat (URL) said:

Nov. 22, 10:21 PM

I'm wondering as well if this isn't a symptom of panic, not reasoned analysis.

Why bailout a business that might be able to survive?

"Goldman Sachs would have to de-lever and that its profitability would therefore suffer. "

Let's watch what happens with this issue. From the FT:

"Goldman Sachs last month converted itself from an investment bank to a bank-holding company. Mr Blankfein said that after the conversion, Goldman had 17 per cent of tier one capital – which was well above the minimum required.

Three days after the conversion, Goldman raised $11bn worth of equity and two weeks later, another $10bn in preferred stock.

Mr Blankfein took exception to the belief that, as a bank holding company, Goldman Sachs would have to de-lever and that its profitability would therefore suffer.

He presented a chart showing Goldman Sachs’ return on equity since going public in 1999 and its leverage ratios during the same period. The chart showed that the two measurements were not highly correlated."

So, let's see what happens with these capital requirements going forward. Are they eventually going to argue that they can keep them lower than required for banks when the right time arises? You say that will be a long time. Maybe. But the loss of competition and and competitors problems is a world of opportunities:

“The most important opportunities in Goldman Sachs’ history came in times of stress,” he said. “Our culture has given us the wherewithal to embrace change.”

In the past 12 months, as the competitive landscape on Wall Street changed, Mr Blankfein said Goldman Sachs had gained more than 100 new clients that had either been involved in billion-dollar deals or raised more than $500m in funds...

Mr Blankfein said Goldman’s ability to move nimbly across markets would allow it to take advantage of market dislocations. At the same time, he told investors that the firm did not want to make any rash moves.

Earlier this month, the Financial Times reported that, at the behest of federal regulators, Mr Blankfein had placed a call to Citigroup chief executive VikramPandit to discuss the possibility of a combination. The conversation led nowhere.

“We’re not going to be stubborn,” Mr Blankfein said. “I’m a steward for a company that’s well over a century old. I’m going to consider everything, but hopefully not going to be provoked into doing anything rash or anything I’ll spend the next 10 years trying to reverse.”

See.