Word: city
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Dates: during 2000-2009
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...save Citi when other banks are going under? Citigroup, with $160 billion in revenue last year, more than 300,000 employees and tendrils in every corner of finance, both domestically and abroad, is the poster child for an institution that is allegedly "too big to fail." A much smaller financial institution, Lehman Brothers, was allowed to go down - and shock waves hit corners of the financial world, like money-market mutual funds, that no one had anticipated. The fear is not only of pain inflicted but also of unpredictability...
...Citi is not the first bank to hit the wall. When Washington Mutual, which had a balance sheet less than a third the size of Citi's, went down, the FDIC immediately flipped the company to JPMorgan Chase. But marrying off Citi was not a viable option. "There isn't anyone to hand Citi to," says Roy Smith, a professor of finance at New York University's Stern School. "This is the King Kong of banks." (See pictures of the global financial crisis...
...What are the chances we'll have to save Citi yet again? There are still plenty of questions about Citi's long-term health. The government's rescue addresses $306 billion worth of troubled assets from Citi's $2 trillion balance sheet. The bank, though, has roughly another trillion dollars in assets that aren't on its balance sheet but kept in entities somewhat removed from the company. These assets could be problematic if the economy grows worse. Fox-Pitt Kelton's Trone also points out what's not included in the government backing: $129 billion in nonresidential consumer loans...
Plus, there's market psychology to contend with. The jittery stock market isn't about to calm down anytime soon, and those jitters apply doubly to financial institutions. Moreover, during the past two decades Citi has made some hundred acquisitions, leaving a sprawling company that can be incredibly difficult to understand. "The market lost confidence that Citigroup, which is such a vast organization, had it all under control," says NYU's Smith. "The question is, Does this intervention restore confidence to a market where we're dealing with psychology and not analytics?" In this environment, it probably pays...
...Does this rescue mean Citi's stock is a buy? With the government injecting a total of $27 billion into Citi and getting warrants to buy more shares, existing shareholders will be diluted - in other words, every shareholder now owns a smaller slice of the business. On the upside, the government's involvement has already sent the stock on a mini tear, to $5.95 at Friday's close, up from last week's low of $3.77 (about the cost of an ATM fee at one of Citi's branches, as one commentator pointed out). (See 10 things to do with...