If you listen to the media today, the bailout of Citigroup is a huge success and the stock market is being rewarded for effective, decisive action. If you listen to me, there is no justification for what happened in the market today and buyers and sellers are irrationally grabbing at whatever news they can. Tomorrow will show that in all reality it’s only a matter of time before something else dips and the market tumbles again. But, there is good news amidst the gloom and that is the surge in Citi stock up nearly 60% to close at $5.95 – much more realistic for a company the size of Citigroup, even with their problems.
Even with the bailout of Citi on the books now, it doesn’t appear that the auto-makers are any closer to getting their due share, which seems odd to me. I hope this proves to simply be posturing by the government as this to me still seems bigger and more important than the likes of AIG. The only difference, of course, being that most politicians don’t care who is in Detroit, but their buddies on Wall Street are a whole different story.
It’s difficult to imagine a world without Citigroup (Citibank, Citi Cards, Citi Mortgage, Primerica, etc.), but with their stock closing down another 26.41% today, to close at $4.71 (C), it’s also difficult, in these troubled financial times, to imagine a scenario that allows Citigroup to continue operations going in the direction that they are. Once the largest bank in the United States, Citigroup’s assets and market value have fallen over 65% in November alone. As if that isn’t bad enough, the word on the street is that government intervention or outside investment may be necessary for their survival – which is basically the kiss of death in this market.
The biggest problem here today is that Citigroup has both a liquidity and solvency issue. Thy’re working to calm their investors, but the market is already so shell-shocked from the other failures to date that these reassurances are falling on deaf ears. In retrospect, it’s easy to see how big a blow losing the bid for Wachovia was and following that with an announcement announcing the elimaination of 52,000 jobs worldwide compounded the problem from a public relations standpoint.
Amid increasing turmoil, the financial sectors continue to get battered with ever worsening statistics, facts, and losses. Even once steadfast companies like Citigroup are seeing lines of of defaulting homeowners looking around for help and their share of the bailout. In what may be good news for some of these homeowners, Citigroup has announced that they are putting a temporary moratorium on foreclosures for all clients who are willing to work in good faith to restructure and repay their mortgages.
Some experts contend, and I would assume that they are correct, that the 158 year old Citigroup is simply postponing the inevitible if things don’t change in the economy as a whole. Of course, it will curb the ever increasing number of foreclosures, but until the underlying problems get resolved its impossible to know what the long-term benefits of this halt will be.