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...watchers are concerned that some of the largest banks will go bankrupt unless they get significantly more government assistance. Indeed, the government last week released a plan to help boost Citigroup's common equity by $50 billion. It is the third round of financial help the government has provided Citi in less than six months. Still, the bottom lines of banks, while ugly, are expected to look significantly better in 2009 than in 2008. And that's not something that can be said of other sectors...
...nation's biggest banks, the U.S. Treasury is providing capital infusions and now a detailed stress test. Also, Citigroup announced on Friday the outline of a deal with Treasury to convert the government's holding of Citi preferred stock into common shares. The U.S. Treasury could end up owning more than 36% of the ailing bank. But confidence in the financial community remains low. Describing a vicious cycle of risk aversion, former Fed chief and current Obama adviser Paul Volcker told Congress's joint economic committee on Thursday that "an insecure bank faced with what it sees as insecure borrowers...
...collapse of Lehman Brothers. The Obama Administration has already said it will buy shares in banks that need more help, and is negotiating a deal that would give it a big minority stake in Citigroup. But it has so far dismissed suggestions that it should take full control of Citi and other big banks. The argument for a takeover is that it makes executives answerable to taxpayers rather than shareholders. The argument against it is that execs solely answerable to taxpayers won't take the entrepreneurial risks needed to return their banks to health...
...former line is beleaguered giant Citigroup, which is currently negotiating with the Treasury Department to swap common stock in the company for some of the $45 billion in preferred stock that the government has purchased so far to shore up the bank's finances. The advantages for Citi are that it wouldn't have to pay dividends on the common stock, and certain capital ratios would improve. In return, the government would get more of an upside if Citi were to return to health, plus effective control of the company. Whether the government's stake would rise...
...Citigroup Loan losses: Even after making a government deal, the bank is still on the hook for the first $40 billion in loan losses in the pool it has insured. Citi also has $277 billion in other, nonhousing consumer loans, such as credit cards and student debt. Roubini estimates that about 17% of consumer loans will go unpaid nationwide. That translates into a $47 billion river of red ink. Add in everything else (commercial real estate, corporate loans), and Citigroup will have to swallow $106 billion in loan losses...