Given Citigroup stock’s dizzying tumble toward nationalization (wipeout) levels, it would appear Uncle Sam’s conversion of Citi preferred shares into common broadly supported anyone shorting the stock. The government did a deal to convert $25 billion of its Citi preferred stock, giving it a stake of up to 36 percent in the bank.Other moves announced this morning also have a decidedly more managerial tone. The bank’s board is to be reconstituted. Other major shareholders, including the government of Singapore, said Uncle too, getting on board with the Treasury plan, which supporters will argue is better than no plan at all. Singapore was an early adopter of the failed investment strategy of bailing out the bank.Where we are in this latest wave of the financial tsunami is difficult to calculate. Globally, this week has seen tremendous activity between governments and banks. Lloyds Banking Group is prepared to tap a 500 billion pound ($715 billion) insurance scheme concocted by Britain to cleanse risky bank assets. And a deal struck yesterday could raise the British government’s holding in Royal Bank of Scotland to 95 percent. Global development banks have launched a two-year plan to lend up to 25 billion euros ($32 billion) to shore up banks and businesses in crisis-hit Eastern and Central Europe.The problem with lenders of last resort is that they are a monopoly and their doors can never close. Notice the queue of seemingly defunct businesses lining up for ever more cash, whether it be Fannie Mae looking for another $15 billion, or the $30 billion GM says it needs to forestall a meltdown of industrial proportions.Deals of the Day:* The chairman of China Huiyuan Juice Group, the country’s top juice maker, said he would meet with Coca-Cola Co executives next week to discuss their $2.5 billion bid for his company.* Beckman Coulter, a maker of medical test systems, said it agreed to acquire the diagnostic systems portion of Olympus Corp’s life sciences business for about $800 million to broaden its clinical chemistry offering.* Britain’s BG Group sweetened its offer for Australian coal seam gas firm Pure Energy, now valuing the company at A$1.03 billion ($671.9 million), in a bid to eliminate rival bidder Arrow Energy from the race.* Commodities trader Noble Group launched a takeover bid for Australia’s Gloucester Coal, valuing the miner at nearly A$400 million ($261 million), looking to thwart Gloucester’s planned merger with Whitehaven Coal.* Indonesian coal miner, PT Indika Energy Tbk said it agreed to buy an 81.95 percent stake in engineering firm PT Petrosea Tbk from Clough International Singapore Pte Ltd for $83.8 million.* China National Petroleum Corp launched a friendly C$443 million ($357 million) offer for Verenex Energy Inc to give the state-owned oil company a stake in a Libyan oil concession.* Coal miner Caledon Resources said it has received an indicative approach “significantly in excess” of its current market price.* UK-based NeutraHealth said it received an unsolicited offer from India’s Elder Pharmaceuticals, at an indicative partial offer price of 5.5 pence per share.(PHOTO: Workers are reflected in the window of a Citibank branch in London January 16, 2009. REUTERS/Toby Melville)
Former AIG CEO Hank Greenberg has had plenty of nasty things to say about what he sees as government mismanagement of his once mighty empire. AIG’s slash-and-burn asset sales are finding only tepid interest in a global market struggling to keep its head above water. Michael Flaherty reports that only three potential bidders are still interested in a large stake in AIG’s $20 billion Asian life insurance unit, with the auction heading into its final week and hopes for a sale fading fast.
This should worry Citigroup shareholders concerned about the government’s intentions toward the bank. Reports are surfacing that Citi may sell its Japanese investment bank and brokerage as it looks to raise more cash from a sale of global assets. Having been taken to task for keeping the naming rights to the New York Mets’ new baseball park — something any big retail company might consider a reasonable marketing expense — Citi execs are reported scratching their heads, trying to figure out what hoops the government wants them to jump through. Markets hate uncertainty, so the current ambiguity about what Washington wants is particularly hard to stomach.
Like many a routine financial blog, DealZone has danced around the definition of nationalization. Reader Alan Macdonald argues we should refer to the process as “democratization.” Pundits are increasingly suggesting the process should be considered more a government receivership, which has a less onerous and deathly long-term tone than nationalization.
Many argue that U.S. banks need to be nationalized, perhaps temporarily, pointing to Sweden’s success in fixing its banking sector. But a growing group of experts is raising alarms, saying that any nationalization cure would be far worse than the banking crisis disease.
In today’s Wall Street Journal, William Isaac, who was chairman of the FDIC from 1981-1985, argues forcefully that nationalizing the biggest U.S. banks is not a viable option. He points out that Sweden is tiny compared with the United States and that the total nationalization effort there involved one bank that had already collapsed. He says that the problems at Citi, Bank of America and perhaps others are too big and difficult to be dealt with through drastic government intervention, particularly one labeled “nationalization.”
Dick Bove, a veteran bank analyst, also thinks government management is a mistake. Nationalized banks would not be dynamic enough to aid the economy in recovery, according to Bove. He also argues that the damage to shareholders would be catastrophic, though certainly in the case of Citigroup, shareholders have already taken most of the hit.
In its latest turnaround plan, General Motors made clear that its money-losing Swedish unit Saab would be independent within a year. Wasting no time, Saab said it would seek protection from creditors and restructure. Better to start with a clean slate.
Saab said it would seek funding from public and private sources through the reorganization, and that GM would provide liquidity.
On another front in the same war, talk of bank nationalization has been dragging down financial markets. Alan Greenspan is talking about it, giving even Republicans an excuse to support this most abhorrently socialist of measures. Even the dire and vague positions of Treasury Secretary Tim Geithner seem designed to ease Americans into accepting what would normally be unthinkable to a God-fearing capitalist.
Lined up to pay their dues, Wall Street CEOs met their congressional inquisitors on Capitol Hill, sparking bouts of righteous indignation peppered with cringe moments worthy of The Office.
Pennsylvania Democrat Paul Kanjorski implored the posterboys for an era of high finance gone bad to “please find a way to return that money before you leave town,” referring to hundreds of billions of dollars in taxpayer bailout funds that officials believe were poured into unwarranted bonus payments instead of being used to revive the business of lending to America. At least he said please.
The message was clear. Though they may never have been instructed to lend the funds when they got them, that’s what Congress wanted. Bankers need to get back to the business of lending. That’s what they were being bailed out for. Never mind that the business of lending, conducted with adequate credit checks, was not what they were doing before, and that prudence in a period of high inflation would preclude much new lending today.