Thanksgiving has come early for embattled Citigroup. The second-largest U.S. bank by assets received a pardon of sorts from the government late on Sunday, getting a $20 billion lifeline – the biggest bank bailout yet.

The bank had been widely thought to be too big to fail because of its global reach. Chief Executive Vikram Pandit and other top management will keep their jobs, but the government will have the final say on executive pay packages.

Citigroup’s shares lost 20 percent of their value on Friday, closing at $3.77, down 60 percent for the week and reaching their lowest level since December 1992. The group’s market value fell to $20.5 billion. That’s a far cry from the good old days of late 2006 when the bank’s market value topped $270 billion.

Citigroup’s market value is now also in line with Goldman Sachs Group Inc. Which makes for interesting speculation: Might Goldman be interested in picking up its rival at current low prices? A person familiar with Goldman’s strategy said it was not interested, but CreditSights said an acquisition of Citigroup by Goldman or Morgan Stanley would significantly add to earnings, if Citi’s bad assets were absorbed by the U.S. government.

For now, Citigroup is alive. But the carving of the turkey may be just around the corner.

More Deals of the Day:

** China Life Insurance Co, the world’s biggest life insurer by market value, is interested in buying Asian assets of American International Group, a senior China Life manager briefed on the situation said.

** Johnson & Johnson Inc will acquire Israel’s Omrix Biopharmaceuticals Inc for $27 a share, or a total of $465 million, the Globes financial news website said.

** Major shareholders of Hynix Semiconductor picked Credit Suisse, Woori Securities and Korea Development Bank to lead manage the sale of 36 percent of the chip maker in a deal that could be worth about 968 billion won ($646 million) at current market prices.

** The United Arab Emirates began to bail out Dubai’s rattled lenders, consolidate its financial sector and cap a building spree as the former boomtown began cutting state spending in the face of the global crisis.

** Slovenian telecoms provider Telekom said on it hopes to buy Macedonian mobile phone operator Cosmofon, adding it was also looking for other takeover opportunities in the Balkans.

** Inhaled-drug specialist Vectura’s Chief Executive Chris Blackwell said the company is looking to make acquisitions to boost its pipeline, adding that it may consider non-inhaled products to do so.

** EADS agreed to keep for three years a majority stake in three German plants it had planned to sell, German newspaper Financial Times Deutschland reported, citing industry sources.

** Key details remain undecided about a government-led plan to restructure swathes of Dubai’s financial sector, Wasim Saifi, chief executive of Dubai-based mortgage lender Tamweel said.

** SSL International Plc, a maker of Durex condoms and Scholl footcare products, said it agreed to buy the Crest condom brand and related assets for 7 million Swiss francs ($5.72 million) in cash from privately owned Doetsch Grether AG.

No one disputes that the IPO market is pretty much dead, notwithstanding yesterday’s IPO by Grand Canyon, a deal that broke a 15 week streak without an IPO. With the stock market as crazy as it’s been, IPOs aren’t likely to stage a miraculous comeback soon.

But the IPO market’s troubles go beyond the current turmoil. They can be linked, among other causes, to changes in technology and regulation following the tech bubble earlier this decade, according to a white paper released on Thursday by consulting firm Grant Thornton.

The paper lists among the culprits of the IPO market’s anemia for the greater part of the decade:

- the emergence starting in 1996 of online discount brokerages such as Charles Schwab and E*Trade, which brought “unprecedented investment into stocks” and helped to cause the dot.com bubble, which in the process “destroyed the very best stock marketing engine” ever;

- decimalization of stock prices in 2001, which brought on automated trade execution, leading market makers to no longer exchange information, with traders “hijacking the markets for speculation.”

- a number of factors, including regulation, led to institutions no longer paying a premium for research, causing a “dumbing down” of stock research and leaving many companies without analyst coverage.

The end result of all this is a far lower average number of deals since the dot.com boom than before, in particular the disappearance of the $25 million IPO, which co-author David Weild says has “gone the way of the dodo bird.”

The authors argue that certain private placement markets such Nasdaq’s Portal, which is open only to qualified institutional buyers, or QIBs, and London’s AIM Market, both designed to help small companies float shares, have only partly satisfied the liquidity needs of smaller companies.

And so the authors imagine a new kind of market called “Second Market” that would have among its features: being open to all investors, have stocks with quote increments of 10 cents or 20 cents, and be intermediated by brokers.

Ultimately the authors argue, the languishing market for IPOs by smaller firms threatens U.S. competitiveness and innovation. Grant Thornton says there were an average of 520 IPOs per year before the dot.com bubble, versus 134 IPOs per year.

And with only 29 deals so far in 2008, and not a single one on the calendar, that average is likely to fall further.

Citigroup Inc tried to calm employees’ concerns on Friday by saying it planned to keep its Smith Barney brokerage and that they shouldn’t worry about the stock price. 

As Citi’s shares fell for the fifth consecutive day, Chief Executive Vikram Pandit tried to downplay speculation the banking giant might sell major businesses to restore its health and investor confidence.

Pandit told employees they should not focus on the bank’s falling share price because that is not what regulators and credit rating agencies worry about, according to two people who heard him speak. 
    
His advice might prove tough to follow. In midday trading, the shares were down 69 cents, or 14.7 percent, at $4.02, after hitting a record low of $3.58 earlier in the day. They closed at $9.52 a week ago.

Citi may not want to shed Smith Barney, but it still is looking at options such as a merger  with another company or sale of  parts of the company. That’s enough to make employees fret, on top of Citi’s plan to cut 52,000 jobs by early next year. 

Plus, concerns are rising that the negative news surrounding Citi could prompt customers or trading partners to flee.

(Additional reporting by Dan Wilchins and Jonathan Stempel)

(Photo, of Pandit in happier times, at a Reuters Summit)

This week’s frantic selling of Citi has that panicky feel to it. At least one bond market analyst has switched from warnings of recession to uttering the D word, and the whole financial sector is sliding in Citi’s wake. With only a couple months left in his term as Treasury secretary, and having just been grilled on Capitol Hill, it wouldn’t have been a surprise for Hank Paulson to get all fiery and combative about where the U.S. economy is headed and what he is going to do about it.

Speaking at the Ronald Reagan Library, Paulson looked backward, defending the decision to let Lehman Bros fail. He said it “naive” for critics to argue that letting Lehman fail paved the way for AIG and Washington Mutual to falter. In the case of Citi, which is widely considered too big to fail, he was mum, except to say that nobody should be so big.

“The steps that we’ve taken have been pretty strong … we understand how important the stability of our financial system is, and stability is our top priority here,” the chief of the Treasury said in response to a question about Citigroup. But he added: “I can’t comment on any one institution.”

Citigroup has lost more than half of its share value this month and was the top decliner among large U.S. banks yesterday. But other banks including JPMorgan and Bank of America also had large share losses.

Though Paulson said he was confident his tool box now has the right set of hammers and wrenches (and admitting it was poorly stocked when Lehman broke), there seems little to take from his comments to give a Citi investor, even a Saudi prince, much cause to be confident.

Deals of the day:

* The banking merger between the Dutch retail operations of Fortis and ABN AMRO will no longer take place, the Dutch Finance Ministry has decided, a Dutch newspaper reported.

* Spanish bank La Caixa said it had talked to Russia’s Lukoil about selling its stake in oil major Repsol but it said any sale hinged on Repsol’s biggest shareholder, builder Sacyr.

* French defence groups Thales and Safran are in talks to swap some assets to cut duplication, Les Echos newspaper said.

* Indonesia’s deposit guarantee agency has taken over Bank Century to increase the bank’s quality, Central Bank Governor Boediono said.

* A New Zealand local council is looking to increase its majority stake in Lyttelton Port Company, offering to buy an extra 2.48 percent of the port on market at a 22 percent premium, the council said.

(Photo by Lucy Nicholson/Reuters)

Some in the financial industry apparently smell opportunity in the latest round of mergers and blood-letting among top banks.

Referring to the Wells Fargo takeover of Wachovia as the WWF and placing Bank of America CEO Ken Lewis atop a bucking Merrill Lynch bull are just a couple of the attention-getting devices financial sector recruiting firm RJ & Makay uses in its latest promotional You Tube video.

Branching out from a previous video aimed at Merrill Lynch brokers, the new “Billion Dollar Video” (the company claims assets from advisers brought to them via these viral recruiting tools represent billions of dollars) targets all financial advisers but specifically appeals to those currently at Merrill Lynch and Wachovia.

Those brokers are grappling with with the question of whether to accept a retention/transition package, move to another firm or go independent. RJ & Mackay is clearly hoping they’ll opt to walk and chose the firm to advise them on where to go next.

The just over four-minute short could help at least get their attention. It’s an equal opportunity stick poker, targeting all the big hits of this financial season. JP Morgan Chase, Bear Stearns, Fannie and Freddie are all in there along with Lehman, Buffett, Goldman, AIG, Morgan Stanley, Bernanke, Paulson, the government bailout, executive greed, executive kool-aide dispensers and dealing with those pesky gnats, known as recruiters.

Watch here:

With Citi’s shares in freefall, down another 10 percent in Europe after slumping 23 percent yesterday to a fresh 13-year low, news that Saudi Prince Alwaleed bin Talal will boost his stake to 5 percent couldn’t have come at a better time for the bank.

Perhaps worth as much as the money to CEO Vikram Pandit, Alwaleed said he was backing management. Pandit is in desperate need of a benefactor. As Jon Stempel reports, the bank’s shares have fallen 78 percent this year. The latest rout began after news of a big cost-cutting initiative. If you can’t pump up your stock by lopping off a fifth of your costs, a crisis of confidence is probably around the corner.
 
For two years now, Citi has been drawing on something more than confidence, with sovereign wealth funds, the prince and the U.S. government tossing it upwards of $100 billion. 
 
The bank has lost $20.3 billion in the last year and taken tens of billions of dollars of writedowns on mortgage and other toxic debt. Analysts expect it to lose money in the fourth quarter, and some don’t expect it to be profitable in 2009.
 
Could the prince - Citi’s biggest single shareholder - put the whole market on his shoulders? Futures turned up on the news as well. 

Deals of the day:

* Japanese trading house Itochu said it would buy a 20 percent stake in Chinese food processing company Ting Hsin for $710 million to take further advantage of fast-growing demand.

* Spanish foods group Ebro Puleva will initiate exclusive talks with British Sugar over the sale of its Azucarera sugar subsidiary, a company source told Reuters.

* Hong Kong’s First Pacific will acquire 20 percent of Philex Mining for 6.2 billion pesos ($123.4 million), the Philippine company, the country’s biggest miner, said.

* Australia’s competition watchdog refused to approve a cooperation agreement between Air New Zealand and Air Canada, saying it would harm competition on the Australia-Canada route.

* Egypt-based mobile operator Orascom Telecom said it had agreed to sell its service company OrasInvest to Abu Dhabi Investment for $180 million.

London-based private equity research firm Preqin has been busy crunching numbers from historical sales of pension fund giant CalPERS’ private equity assets.

The California pension fund sold $2.1 billion of private equity assets in late 2007 in the secondary market — which trades private equity stakes between the pension funds and endowment funds that want to exit or buy.

CalPERS updated information on its Website earlier this week giving fund data up to June 30. The tables are detailed, and forensic work is needed to work out the funds exited or bought into. Preqin said in a press release today that the net asset value of funds sold equates to 9 percent of CalPERs overall portfolio, and calculates the remaining value of its private equity portfolio at $21.5 billion.

Preqin said the majority of fund interests sold feature in the third and bottom quartiles of Preqin’s private equity benchmarks, however, the sale did include some top performing funds. 

The best performing fund interest sold was in Doughty Hanson Fund II, a buyout fund of vintage 1995 with a net IRR of 46.3 percent, Preqin said. It said the worst performing fund interest sold was in American River Ventures I, a 2001 vintage fund with net IRR of -27.7 percent. Preqin said the sales mainly included venture funds of vintages 2000 and 2001.

Calpers didn’t confirm Preqin’s calculations. The pension fund said it couldn’t specify how much more it gained from the sale in 2007, when the market was peaking, than if it had tried to sell it today.
But Leon Shahinian, Senior Investment Officer at CalPERS private equity program, said via an email from CalPERS spokesman: “In today’s market, we would have had hundreds of millions in losses.”

The pension fund said that its strategy dated back to late 2005, when its Alternative Investment Management program (AIM) presented a strategic plan to the CalPERS Board to lessen the administrative burden of having so many funds to oversee, and to optimize long-term private equity performance.

In 2006, it hired UBS Investment Bank to scrub its private equity portfolio and develop a list to sell. At that time, it had investments in several hundred funds.

The inital sale of the $2.1 billion assets — which were sold in the secondary market and not all in one go — was in the third quarter of 2007, when the Dow was ranging between 13,000 to 14,000.
CalPERS said there were 80 partnerships in this portfolio and 60 different general partnership relationships, diversified over various private equity sectors such as venture capital, distressed, buyouts, etc. Sales were completed in the fourth quarter of 2007.

The secondary market for private equity has heated up as equity markets have slid, meaning pension fund allocations to private equity have grown proportionally and now need to be rebalanced, as the FT points out in its Lex column today.

Hedge fund manager William Ackman has come up with a plan to save troubled discount retailer Target: form a trust with the land the Minneapolis-based store chain owns, spin off 20 percent of that into a $5 billion IPO, then use that money to lower Target’s debt and in the process maintain its credit rating. Ackman’s hedge fund, Pershing Square Capital Management owns 10 percent of Target.

The plan, a revised version of an earlier real estate plan by Ackman, might sound like a good idea on paper. But commercial REITS are down 57 percent so far this year, according to the FTSE NAREIT US Real Estate Index (industrial and office REITs are down even more, 62 percent).

And the IPO market is all but dead. The last IPO to launch goes all the way back to early August, and 87 companies have pulled their IPO plans so far this year . (One IPO is scheduled to price Wednesday night, however.)

Certainly Target shareholders looked unimpressed by Ackman’s latest plan, bidding the retailer’s stock down 10 percent to a new 5 1/2-year low.

Still, credit Ackman for thinking big. A $5 billion deal would rank as by far the largest among REITs of any kind this decade, according to Thomson Reuters data.

So far the largest REIT IPOs of the decade are Douglas Emmett, which went public in October 2006 with a $1.6 billion stock flotation and is down 45.6 percent over its offer price, and KKR Financial Corp, which launched a $900 million IPO in June 2005 but whose parent KKR Financial Holdings in March agreed to sell it after it failed to live up to expectations.

But if management and other shareholders go along with Ackman’s plan, time may be on his side. Launching an IPO takes time and given enough of it, the commercial real estate and IPO markets could rebound. One day.

Hedge funds put Greenwich, a small town in Connecticut on the world map. The industry effectively made the Southern Connecticut area code synonymous with hedge funds.

Now the town is learning what happens when hedge funds don’t get it right. During a recent visit, Reuters reporter Joe Giannone found out that things aren’t quite what they used to be.

The luxury car dealers are quiet, the prices of mansions are declining and the retailers who have made a good living serving its wealthy residents are complaining about a sudden drop in business, Giannone writes.

It’s all relative though. Roxana Bowgen, an estate agent at Engel & Volker, an international broker of high-end properties, tells Giannone that houses are still selling, just at a slower pace. “There are fewer people buying $10 million, $20 million homes. We’re seeing an adjustment, a correction taking place,” she said.

(Photo credit: Mike Segar, Reuters)