Over the past 80 years, the US government has engineered not one, not two, not three, but at least four rescues of the institution now known as Citigroup Inc. In previous instances, the bank came back from the crisis and prospered. Will Citigroup rise again from its recent near-death experience?
The answer to that question concerns not only the 276,000 employees who work at what was once the world’s largest bank, but the US’ taxpayers as well. Even as Citi’s stock has soared from a low of $1.02 (Rs48) to its current $4.09—and the company has eked out a $101 million profit in the third quarter along the way—it’s still unclear whether it can climb out of the hole that its former leaders dug before and during the mortgage mania. If Citigroup remains stuck, taxpayers will be on the hook for outsize losses.
Hurdles ahead: Citigroup headquarters in New York. Analysts at Fitch Ratings project that Citigroup will continue to be plagued with hefty loan loss provisions and that its operations will remain weak into 2010. Eremy Bales / Bloomberg
Citigroup remains a sprawling, complex enterprise, with 200 million customer accounts and operations in at least 100 countries. And when people talk about institutions that have grown so large and entwined in the economy that regulators have deemed them too big to be allowed to fail, Citigroup is the premier example.
As a result, the government has handed Citigroup $45 billion under the Troubled Asset Relief Program (TARP) over the last year. Through the Federal Deposit Insurance Corp. (FDIC), a major bank regulator, the government has also agreed to back roughly $300 billion in soured assets that sit on Citigroup’s books. Even as other troubled institutions recently curtailed their use of another FDIC programme that backs new debt issued by banks, Citigroup has continued to tap the arrangement.
Citigroup is also one of only two TARP recipients so desperate for capital that they’ve swapped government-issued shares into common stock, diluting existing shareholders. (GMAC is the other.)
While Citigroup has written down tens of billions of dollars worth of mortgages on its books, there are looming problems in its huge credit card portfolio. Of the company’s $1.2 trillion in credit commitments outstanding in the second quarter, $873 billion were credit card lines. A measure of the bank’s efforts to wrestle that problem to the ground is the interest it charges customers: In October, Citigroup raised interest rates on some credit card holders to 29.99%.
Chris Whalen, editor of the Institutional Risk Analyst, calls Citigroup “the queen of the zombie dance”, referring to the group of financial institutions that the government has on life support.