Citigroup Inc.'s stock dipped below $4 a share Friday.
"Rumor mongering" was the cause of the stock's cliff dive, according to CEO Vikram Pandit, as executives over at Citi continue to reiterate that its capital position is "very strong." Of course, we've heard that before from the likes of Bear Stearns Cos. and Lehman Brothers Holdings Inc. before they failed, so naturally bloggers and the Street are wary of what the executives are saying and speculating that over the weekend Citigroup will probably get
rescued by the U.S. government or could even be
acquired.
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Downplaying rumors seem to be helping Pandit and CFO Gary Crittenden as
much as it helped Lehman's Dick Fuld prior to the
bankruptcy of the investment bank. The two reportedly said on the
conference call that,
"the banking giant's plunging stock price
has little to do with the operations of the organization, which remain
strong,"
and that Citigroup apparently does not want to change its business
model and plans to keep its Smith Barney brokerage, according to
Reuters. However, shareholders certainly have some say in such a decision, as
Clusterstock explains.
So what will happen this weekend? The blog
Bronte Capital has some interesting suggestions:
It is open to Sheila Bair (and her fellow regulators) to seize
Citigroup (deeming it unsound) and to leave at the holding company -
and worth near zero - all the equity, preferred shares and holding
company debt obligations. Indeed this is precisely what she did at Washington Mutual...She
has the power to guarantee some assets of the new entity - and her
guarantees carry the full faith and credit of the US Government. If
Sheila Bair was to confiscate a really big bank and cancel all the
parent company liabilities then no other bank in America would be able
to raise parent company debt...
And that would be a huge decision indeed because then every bank with
parent company liabilities (meaning almost every bank in North America)
would fail. Many - but not all - could be taken over in the same
fashion at little cost to the government. But almost all of them would
wind up property of the US Government.
If that's not gloomy enough, the discussion boards are full of more doom:
What do you think will happen to Citigroup this weekend? Leave a comment. -
Maria Woehr
