Sunday, December 2, 2012

CITIGROUP: BAILOUT

Despite the heroic 'parachute' attempt by the US government, Citi's landing seems hardly soft

Pandit is aiming to reduce expenses by 20% across the board. And he touched new highs (or lows) when, earlier this year, Citi banned color photocopying & single sided printouts across the company.

Citi has already closed down nine of its hedge funds. In July this year, it sold off its German consumer banking business to Credit Mutuel for $7.7 billion. This was followed by selling of Citigroup Global Services to TCS. Pandit has pledged to raise $400 billion by sale of assets to bring Citi back in shape and size. Citi is also renewing its focus on the core banking business and more on emerging markets. Dr. Jonathan Woodier of Citigroup says to B&E, “About 35% of Citi’s business is in markets outside US. We want to add further on to that and increase our share of the pie”. But Citi will definitely sell off its stakes in many other companies (more than 30 in India alone) to counter its liquidity crunch.

Despite such painstaking measures, Citi is still not guaranteed to come out of the woods. The depth of uncertainty in the balance sheet (and off it), actually overwhelms the entire Treasury bailout package for the US economy! On the balance sheet, Citi has $2 trillion worth of assets and some $1.23 trillion aren''t even reflected on it. Richard Wilson, Founder of Hedge Fund Group'', comments to B&E, "The $1 trillion or so off balance sheet assets of Citi were invested through SPVs. The market thinks the mess is much bigger than what it appears on the balance sheet. Now if these assets turn toxic, it will be a problem for Citi." There''s a feeling, though, that the Treasury must have considered that (hopefully not based on claims by the bank itself on their worth!). Just to remind doomsayers that Citi should continue to interest them for quite a while. So there''s hope for them yet! The doomsayers we mean!


Source : IIPM Editorial, 2012.An Initiative of IIPM, Malay Chaudhuri

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