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Strategies & Market Trends : Value of Perfect Information
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From: Q811/22/2008 8:39:25 PM
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HEARD ON THE STREET NOVEMBER 22, 2008 Shoring Up Foundations At Citigroup
By PETER EAVIS

If you do it for one, the danger is that you will have to do it for others.
That principle will heavily influence the Treasury and Federal Reserve if they decide to intervene to arrest the decline in Citigroup's shares.
The bank's stock plunged another 20% Friday, even as the wider market jumped 6% -- a clear sign that the investors harbor specific concerns about the bank.

Christoph Agou/The Wall Street JournalThe authorities were likely heartened that share prices of J.P. Morgan Chase and Bank of America didn't slump Friday with Citi.
But investors' attempts to differentiate between Citi and other large banks could evaporate if the authorities do something big in response to Citi's nosedive. The solutions for Lehman Brothers, Wachovia and Washington Mutual had an impact across the banking sector.
Responses to Citi could fall into two camps: those that punish stock investors and those that don't. The former would happen if Citi was bought by another bank at its current stock price or if the government took a highly dilutive stake, à la American International Group. Shares in other banks might fall in this climate if investors feared a similar outcome.
Stockholders would benefit if the government injected a large amount of dirt-cheap capital without causing huge dilution and even agreed to take risky assets onto its own balance sheet. But other banks would clamor for such treatment -- and bank executives could profit handsomely.
Perhaps the only way to sell that approach would be to argue that it has the best chance of settling the markets. It is the sort of political wager that could be attempted only by a politician with a few weeks left in office.
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