Here is how the US banking nationalization process works.

Discussion in 'Economics' started by SouthAmerica, Feb 22, 2009.

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  1. .
    February 22, 2009

    SouthAmerica: At this point you don’t need to be a "rocket scientist" to figure out that there’s no other choice for the US government than nationalize immediately Citi Group, Bank of America, and a few other Zombie banks.

    But not before the US government gives a chance for these banking institutions to be looted one last time of any assets in sight. And the beauty of this looting job is that the US government supplies these banks with new taxpayer money, then ask these institutions to lend out that money.

    The intelligent option for the US government in their effort to build new credibility into the US financial system it would be for the US government to bite the bullet and nationalize immediately these Zombie banking institutions and clean them up of 100’s of billions of toxic assets.

    But the current government is afraid that if they have the guts to do the right thing the current government would be tagged as a socialist government.

    This scenario opens the door for a final looting job by the senior management of these Zombie banking institutions, since they know that the US economy is sinking like the “Titanic” and will deteriorate in dramatic fashion in the coming months and years further pushing these Zombie banking institutions into insolvency.

    But at this time these Zombie institutions still have some assets available to be pillaged and the senior management of these institutions can do this pillaging job with the blessing of the current US government since they want these Zombie institutions to lend the money out ASAP - to anyone as long the money is going out the door.

    Since the senior management of these Zombie banking institutions are going to lose their jobs anyway – It is just a matter of time – why not target the lending of these billions of US dollars to companies that might be potential job opportunities or future clients for many of these banking executives. All they need to do is perform some creative thinking on that regard.

    In the meantime the US government is happy that the Zombie banking institutions are lending money again, and the senior management perform a final looting job on these banking institutions with the blessing of the US government, and these swindlers are able to set the stage for their next swindling job with the billions of taxpayer money that they were able to transfer out of the Zombie banks.

    Finally when these Zombie banks have been looted to the last dime available – and all the taxpayer money has been wasted and gone - the US government has no other alternative than nationalize the carcass and toxic assets that were left behind.

    And all that is going to happen just because the US government does not have the guts of doing the right thing immediately and nationalize these Zombie banking institutions before they do further financial damage.

    And the US government want to build new credibility around the world for the US banking and financial system – but in the meantime the looting, plundering, and pillaging will continue until the US government has the guts to nationalize all these Zombie banks and other financial institutions.

    The question about the nationalization of these Zombie banks in the United States is not if that is going to happen?

    It is just a matter of when this is going to happen and common sense would say to anyone with a brain that the sooner the better, but again we are talking about the US financial and banking system here and common sense has been lacking in the US for a long time.

  2. Nationalization will fail too.
  3. .

    February 23, 2009

    SouthAmerica: Nationalization is the only option out of this massive financial mess.

    Nationalization of the Zombie banks also would prevent another global market meltdown similar to the one we had after Lehman Brothers death.

    But there is good news for the current management of Citigroup: the mainstream media are reporting that the US government might put some more fresh money into this bottomless money pit - more money to be looted before the final nationalization of this dinosaur finally come to past.

  4. .

    February 27, 2009

    SouthAmerica: The good news is that besides the US government we still have some foreign SUCKERS around also willing to waste their resources with a sucker’s bet on the Zombie banks in the USA such as: “The Government of Singapore Investment Corp., Saudi Arabian Prince Alwaleed Bin Talal, Capital Research Global Investors and Capital World Investors are among the private investors that said they would participate in the exchange.”


    “Government could own up to 36 pct. of Citigroup”
    Citigroup reaches deal that could give the government up to a 36 percent stake in the bank
    By: Stephen Bernard, AP Business Writer
    Associated Press - Friday February 27, 2009

    NEW YORK (AP) -- The U.S. government will exchange up to $25 billion in emergency bailout money it provided Citigroup Inc. for as much as a 36 percent equity stake in the struggling bank.

    The deal announced Friday -- the third attempt at a rescue plan for Citigroup in the past five months -- is contingent on private investors also agreeing to a similar swap.

    The aim is to keep the New York bank holding company alive and bolster its capital as it faces growing losses amid the intensifying global recession.

    Existing shareholders would see their ownership stake shrink to as little as 26 percent and the bank said it is eliminating all dividends on common shares.

    Investors appeared disappointed in the deal and expected dilution of their stake, sending shares plummeting 94 cents, or 32.8 percent, to $1.56 in premarket trading. The news also dragged down stock futures ahead of Friday's market opening.

    Underscoring its precarious nature, the company also disclosed that it recorded a goodwill impairment charge of about $9.6 billion due to deterioration in the financial markets.

    The Treasury Department, which has provided a total of $45 billion to Citi, said the transaction requires no new federal funds. But it left the door open for Citigroup to seek additional government funding or for the conversion to common shares of the remaining $20 billion in federal bailout money it received late last year. The government currently holds about an 8 percent stake in Citi.

    For now, that $20 billion in government funding will be converted into a new class of preferred shares that will be senior to other bank debt and it will continue to pay a yearly 8 percent cash dividend. As part of the deal, the payout for all other preferred shares will be suspended.

    Citi will offer to exchange up to $27.5 billion of its existing preferred stock held by private investors at a conversion price of $3.25 per share. That's a 32 percent premium over Thursday's closing price of $2.46.

    The Government of Singapore Investment Corp., Saudi Arabian Prince Alwaleed Bin Talal, Capital Research Global Investors and Capital World Investors are among the private investors that said they would participate in the exchange.

    The conversion will help provide Citi the mix of capital to withstand further weakening in the economy. The stock-conversion option was laid out by the Obama administration earlier this week as an option for providing relief to banks. It gives the government greater flexibility in dealing with ailing banks. It also gives the government voting shares, and therefore more say in a bank's operations.

    But common shares absorb losses before preferred shares do, which means taxpayers would be on the hook if banks keep writing down billions of dollars' worth of rotten assets, such as dodgy mortgages, as many analysts expect they will.

    On the other hand, common stock in banks is incredibly cheap, and taxpayers would reap gains if the banks come back to health and the stock price goes up.

    In Washington, the Treasury Department confirmed the deal. "Treasury will receive the most favorable terms and price offered to any other preferred shareholder through this exchange," the department said in a statement.

    One of the hardest hit banks by the ongoing credit crisis, Citi has also received guarantees from the government that protecting it from the bulk of losses on $300 billion of risky investments. Citi has been especially hit hard by investments in the mortgage market, which began to collapse in 2007.

    The deal comes as Citi is in the process of shedding assets and cutting staff as it looks to reduce costs and streamline operations ahead of splitting its traditional banking businesses from its riskier operations. Last month, Citi reached a deal to sell a majority stake in its Smith Barney brokerage unit to Morgan Stanley.

    Citi will also reshape its board of directors, Richard Parsons, the bank's chairman, said in a statement Friday. The board, which currently has 15 members, will have a majority of new independent directors as soon as possible, Parsons added.

    Three board members in recent weeks have already said they would not seek re-election as the company's annual shareholders meeting in April. Two others will reach the mandatory retirement age by the time of the meeting.

    Earlier this month, Roberto Hernandez Ramirez said he would not stay on beyond his current term. Last month, Robert Rubin, a former Treasury Secretary who was a longtime Citigroup board member, and Win Bischoff, most recently chairman at Citigroup, both announced their retirement from the company.

    The goodwill charge announced Friday was added to Citi's 2008 results along with a $374 million impairment charge tied to its Nikko Asset Management unit. The charges resulted in Citi
    revising its 2008 loss to $27.7 billion, or $5.59 per share.

    AP Economics Writers Jeannine Aversa and Martin Crutsinger in Washington contributed to this report.

  5. Daal


    People are taking the 'zombie bank' accusation too far. A zombie bank is one with not enough capital, it will hoard money and try to rebuild capital from pre-tax earnings. If the government increases the TCE of banks, that should get them out of the zombie state. The FDIC doesnt need to be involved for that. So US doesnt need to go japanese if the banking system is recapitalized.

    That is unless you are arguing the reason they are zombies is because of the management and the UST needs to go in a massive hiring spree for banking officials
  6. .

    March 2, 2009

    SouthAmerica: Yesterday when I received the latest issue of The Economist magazine one of the main articles was about nationalizing America’s banks.

    Instead of biting the bullet (nationalizing the Zombie banks immediately) the US government prefers the slow death with a lot of pain alternative.

    Over the weekend I was watching a senior executive of Citigroup being interviewed on Bloomberg TV – and he said that Citigroup operates in over 100 countries around the world – as if that was a positive information to give some hope for Citigroup’s survival. I guess that fellow (the latest president of Citigroup) were not aware that in many countries around the world the internal financial system is melting very fast and if anything that type of information would represent even more negative news and another nail on the coffin of Citigroup

    Many executives and financial experts in Wall Street including various talking heads from CNBC believe that the US government should overturn mark-to-market accounting rules to create even more artificial information that would please Wall Street.

    I know they don’t need a government official Act to change these accounting rules – but since the US government want to build up new credibility around the world for the US financial system then Congress can overturn the mark-to-market accounting rules by passing a new Act - and here is the perfect name for that Act: “The Bernie Madoff Financial Transparency Act of 2009”

    We are entering a new Great Depression and the US economy is spinning completely out of control in a downward spiral and the best alternative would be for the US government to nationalize the Zombie banks immediately – but since the US government don’t have the guts to do the right thing then we are going to watch the slow death of many of these financial institutions which will cost a fortune to the American taxpayer.

    By the way, only FOOLS would invest fresh money on these money pits such as Citigroup – and for all practical purposes many of these Zombie banks are already insolvent and bankrupt.

    There’s plenty of money around available for investment but the reality is: the smart money would not touch these Zombie banks even with a 10-foot pole.

  7. tradersboredom

    tradersboredom Guest

    they own the shares and the gov' might even make a profit later on when the shares are then sold back to private hands after banks balance sheets are clean again.

    gov't won't own the shares forever,

  8. tradersboredom

    tradersboredom Guest

    and when you buy shares of previously owned gov't owned corporations you always great assets with value.

  9. .

    March 2, 2009

    SouthAmerica: It is not only the matter of cleaning up the balance sheet of these banks - the toxic assets - when the US government fully nationalizes the Zombie banks such as Citigroup then they should also restructure these mega banks and they should break them up into viable businesses that make sense.

    In the case of Citigroup they should start by splitting the banking system from the Travelers Insurance business and so on....

  10. .

    March 8, 2009

    ShouthAmerica: Talking about stock manipulation - Last Friday, March 6, 2009 Citigroup stock traded most of the day in the range of $ .97 cents and $ 1.00

    They traded about 415,218,610 shares in total for the day.

    In the last 5 minutes of trading right just before the 4:00 PM closing time - Citigroup stock moves from $ 1.00 to $ 1.03 the closing price.

    Someone pushed the price up on this stock with the last few trades of the day right at market closing time.

    #10     Mar 8, 2009
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