(Updates attribution, adds CNBC information, adds analyst
By Dan Wilchins
NEW YORK Nov 23 Citigroup Inc (C.N) is looking
at putting risky assets in a government-supported "bad bank" --
a step to reassure investors that the rest of its assets were
safe, a person briefed on the matter said on Sunday.
The "bad bank" might take on $100 billion of Citigroup's
assets, although that number is still being discussed.
Citigroup might bear the initial losses on the assets, and the
government might cover losses beyond a particular threshold,
the person said.
The U.S. government may take a stake in Citigroup in
exchange for taking most of the losses, the New York Times
Citigroup spokesman Mike Hanretta declined to comment.
Talks are still fluid, the person said. CNBC reported that
the government's main priority is to give Citigroup a $10
billion to $20 billion equity infusion, but that would not
necessarily preclude other actions to bolster the bank.
Any government infusion would be in addition to the $25
billion that it gave Citigroup in October.
But any "bad bank" plan would be similar to what the $700
billion Troubled Assets Relief Program was set up to do: take
over bank assets that were either troubled or likely to be
troubled. The TARP, signed into law last month, has since
shifted its focus on giving direct capital injections to banks,
in part because of difficulties in determining how it would buy
U.S. financial markets are waiting for some sort of
Citigroup (C.N) announcement this weekend, analysts said.
"A lot of people are looking for some news by Monday," said
Blake Howells, director of equity research at Becker Capital
Management in Portland, Oregon.
Citigroup's shares fell 60 percent last week to $3.77 amid
concerns about the bank's loan exposure amid a recession
hurting many economies globally.
The bank is not in danger of near-term collapse, people
close to Citigroup said on Friday. Depositors are sticking with
the bank, as are trading counterparties. The capital ratio that
regulators look at most carefully, namely the tier-one capital
ratio, is well above minimum required levels.
But a rapid decline in share price can make customers
skittish and cut into a bank's business, wrote analysts at
independent research boutique CreditSights on Saturday.
"Unfortunately, we feel like we have seen this movie
before," they added. Lehman Brothers Holdings Inc and
Washington Mutual Inc both experienced sharp declines in their
shares, followed by an exodus of customers. Lehman eventually
filed for bankruptcy, while regulators took over Washington
Mutual and sold its assets to JPMorgan Chase & Co. (JPM.N)
A SURPRISE TURN
Citigroup's executives last week debated options as the
company's share price sank, including merging with another bank
or selling off businesses. Citigroup also spoke to the Federal
Reserve and the U.S. Treasury about the government making a
public statement of support and perhaps even putting additional
funds into the bank.
And Chief Executive Vikram Pandit told employees on a
conference call last week that the bank was strong and had no
Giving bad assets to the government could help Citigroup,
but would also be a surprise turn, given the difficulties the
TARP program ran into in when it tried to buy assets.
"Buying assets, that's exactly the position the government
didn't want to be in," said Daniel Alpert, a banker at Westwood
The Financial Times reported on Sunday that the board was
meeting to discuss the bank's future.
(Reporting by Dan Wilchins; Editing by Bernard Orr)