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Non-Tech : Banks--- Betting on the recovery -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (36)	2/22/2009 10:03:13 PM
From: tejek	Read Replies (1) \| Respond to of 1428

While this is not great news for C shareholders, its better than having your bank nationalized. Markets should rally tomorrow off this news. Report: Government considers bigger stake in Citi By MarketWatch Last update: 8:59 p.m. EST Feb. 22, SAN FRANCISCO (MarketWatch) -- Citigroup Inc. reportedly is in talks with federal officials for the U.S. government to expand its ownership of the bank, just days after Citigroup's stock slumped to an 18-year low and Bank of America Corp. shares hit a record low on worries the two financial giants may be nationalized. A story in the online edition of the Wall Street Journal, citing people familiar with the situation, reported that while the talks could still fall apart, discussions center on the government ending up with as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, the Journal reported its sources have said. The proposal was made by Citigroup to its regulators, according to the report, which also noted the Obama administration hasn't indicated if it supports the plan. The Journal reported that under the terms being discussed, a large part of the $45 billion in preferred shares held by the government would convert into common stock. The government received those shares, equivalent to a 7.8% stake, in return for pouring capital into Citigroup. The move wouldn't cost taxpayers more money, but other Citigroup shareholders would see their shares diluted, the report said. Fears about nationalization dogged financial-sector stocks at the end of the week. On Friday, Senate Banking Committee Chairman Christopher Dodd said banks may have to be nationalized for a short time, according to Bloomberg News. White House press secretary Robert Gibbs tried to calm such concern, saying President Barack Obama's administration thinks a "privately held" banking system is the correct way to go. See full story. The comments seemed to help as shares of Citigroup and Bank of America recovered some losses during afternoon action. Bank of America shares turned positive briefly before falling back at the close. On Saturday, Bank of America Chief Executive Kenneth Lewis dismissed investors' concerns about the possible nationalization of Bank of America and denied the need for further financial aid, according to an internal memo cited by media reports. "I see no reason why a company that is profitable, with capital and liquidity levels that are very strong, and that continues to lend actively, should be considered for nationalization," Lewis said in the memo, sent to his staff and titled "Rough week for stock, good week for business." See full story. The Journal reported that as of Sunday, Bank of America isn't discussing a larger ownership stake for the government, citing comments from a bank spokesman. On Friday, a Citi spokesman highlighted the bank's high Tier 1 capital ratio, a measure of financial strength, and said it continues to cut assets on its balance sheet, reduce expenses and streamline its businesses for future "profitable growth." He declined to comment further. The U.S. government injected more than $100 billion into the nation's largest banks last year to bolster capital that's been whittled away by a surge in defaults on mortgages and other loans. Citigroup and Charlotte, N.C.-based Bank of America have received the most support, getting government guarantees to protect them against losses on toxic assets as well as receiving direct investments. However, shares of the two banks continued to slump, prompting some experts to call for the government to take control, at least temporarily. "The list of those people in favor of nationalization, our long-standing recommendation for the biggest banks in the financial sector, continues to grow," said Barry Ritholtz, director of equity research at quantitative-research firm Fusion IQ. Ritholtz cited Alan Greenspan, the former chairman of the Federal Reserve Board, as well as the bearish New York University economics professor Nouriel Roubini among several proponents of bank nationalization.