Premarket trading of Citigroup Inc. is pointing to a higher open for the beleaguered bank. Shares of Citi were up roughly 42 cents to $5.12 prior to the market open Friday morning, but with stock markets swinging wildly intraday, the shares of any company aren't staying in positive territory for long. Should Citi find itself in the precarious position of trading below $5 a share again Friday, then forced selling by large investors could send the stock rocketing even lower.
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After finishing at $4.71 on Thursday, there are fears that Citi could take another,
steeper round of sell-offs by asset managers, pension funds and
endowments with internal standards that disallow holding stocks with a
value of less than $5,
the Financial Times writes.
The rapid fall in the bank's market capitalization already has Citi's
management worried that corporate and retail customers are getting spooked
and have started to pullout their deposits. The Federal Deposit Insurance
Corp. only insures deposits up to $250,000, so a decision by the
bank's largest customers to move to a more stable environment would act
as a run on the bank. A similar scenario played itself out at
Washington Mutual Inc., where it wasn't lines around the block with small
depositors waiting to withdraw money that prompted the government to
seize the bank, but rather the flight of large customers transferring
millions out. The FT cites unusual deposit movements as one of the key
variables that the FDIC is considering in deciding whether to intervene
at Citi. -
George White
See FT story
