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FINANCIAL MARKET : CITIGROUP BAILOUT

One step away from burial

 

Once a global financial giant, Citigroup is now counting on its last chance to avoid a cold death
DEEPAK RANJAN PATRA | Issue Dated: February 1, 2009
Tags : Witnessing | bizarre | financial | market | company | value | steadfastness | Bear Sterns | Citigroup | Wall Street | honchos | government | tax-payers | money | bailout | offering | companies | financial | rock | bottom | validity | bailout | plans | package | sceptical | success | banking | behemoth | Messy | management | riches | mightiest | conglomerate | collapse | market | capitalisation | bosses | CEO | Vikram Pandit | blamed | losses | records | investment | Lehman Brothers | debt | Bloomberg Financial Markets Merrill Lynch | Xavier Chavee | Senior | Director | Standard & Poor’s | diversified | portfolio | global | Chris Clott | Associate | Professor | California Maritime Academy |
 
One step away from burial After witnessing a bizarre 2008 at the financial market, today no one can tag any company ‘too big to fail’, irrespective of its size, value or, for that matter, steadfastness. From Bear Sterns to Citigroup, many of the Wall Street honchos, who once were thought to be invincible, are now at the government’s doorsteps to get a slice of the tax-payers' money to live further. But if Citigroup is anything to go by, the government bailout, irrespective of how much the latter is offering, seems to be less keeping in mind these companies have hit the financial rock bottom. And that definitely raises a question mark on the validity of the bailout plans and, of course, also on the survival of the company on the bailout hot seat at the moment, Citigroup.

While the government is mulling over a $306 billion bailout package for Citigroup, analysts are skeptical about the success of this package in reviving the banking behemoth. Messy management, coupled with the run for riches, has been the major reason as to why the once largest and mightiest financial conglomerate has been brought down to its knees. The collapse in its market capitalisation (an erosion of $111 billion in absolute terms, 64 per cent on a year-on-year basis) appears to be the bank’s final nail in the coffin, making it for all practical purposes impossible to raise the capital it desperately needs to save itself. And in the midst of all these troubles, the bosses at Citi seem to be playing the blame game rather than making any radical attempt to keep the company afloat. So much so that even the CEO, Vikram Pandit, has blamed the prior management who dived too deeply into the real estate domain and caused massive losses. And this reflects in the financial records of the company. Today, it is one of the biggest unsecured creditors with close to $138 billion in bonds, which forms an overwhelming 23 per cent of collapsed investment banking major Lehman Brothers’ debt of $613 billion. Moreover, as per data available with Bloomberg Financial Markets, market value of Citigroup is reduced to a paltry $83 billion (as on September 15, 2008) from mind-boggling $273.6 billion at the end of 2006. Now does this mean that Citigroup is actually moving on similar lines to meet the fates of Lehman Brothers and Merrill Lynch? Well, Xavier Chavee, Senior Director, Standard & Poor’s, candidly answers, “The group would meet a similar destiny as there are lots of obstacles brewing up thanks to its mismanaged inorganic activities. The diversified portfolio, as of now, is the saving grace but the future holds the same fate.”

Meanwhile, the company finally seems to have understood the fact that size does matter – at least when it's about controlling the affairs on a global level – as it has now decided to split itself into two entities: Citicorp (to handle the traditional banking work) and Citi Holdings (to take on the firm's riskiest investment assets). But then, the decision has come only after another disastrous result of a quarterly loss of $8.29 billion for the last quarter of year 2008. Such bleeding losses for quarters after quarters are now giving the impression that with every result announcement day, Citi is moving one step closer to its grave. However, splitting of the company perhaps is the last desperate arrow from Citi’s quiver to save the company, and if the strategy fails, soon we may find newspaper articles reading something like what Chris Clott, Associate Professor, California Maritime Academy, says, “Failure of a bank as large as Citigroup would be an enormous loss.”
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Issue Dated: Feb 5, 2017