financialobserver

What Are Citigroup's Options?

Citigroup needs to listen to the financial community and the Federal government needs to create confidence among investors of banking stocks. The idea of moral hazzard is 180 degrees wrong. IMHO no bank (not BofA, JPMorgan, Goldman, etc.) will be safe if this type of stock spiral is a self-fulfilling prophecy. Here is a suggested 10 point plan for fixing the immediate problem (fundmental problems such as illiquidity in the mortgage market still of course need addressing):


10 Point Plan for Citigroup

1. U.S. Government first announces that if Citigroup's stock remains at distressed levels it will purchase it. Then it begins Tuesday to buy $1 Billion in Citigroup stock in the open market. This is a prelude for other actions that may very well provide the government with an immediate and appropriate paper gain.

2. At the same time as the first announcemnent, the Government and Citigroup explain to the public and financial community the outline of the following remaining steps to be implemented within a specific deadline, e.g. two to three months

3. Government invests $9 Billion in Citigroup and takes back common stock at higher-than-current-ma... price, say $10 per share, irrespective of price at time of investment.

4. Government buys from Citigroup $11 Billion of redeemable Preferred with a modest coupon

5. Government reinstates temporarily ban on short sellers for financial institutions and permanently reinstates uptick rule for, at a minimum, financial institutions

6. Citigroup reduces dividend to nominal amount just sufficient to avoid major selling by funds unable to hold stock in companies without a dividend.

7. Citigroup sells additional assets/businesses to raise an additional targeted amount, $5-10 billion (over and above current plans)

8. Citigroup makes detailed presentation to financial community as to how these measures provides Citigroup with well in excess of any notion of reasonable capital adequacy.

9. Government makes public statements saying it will do what is necessary to support the banking system in general and Citigroup in particular, including statement that it:

a. does not believe Citigroup is unsound
b. believes there is a dislocation in the equity capital markets regarding Citigroup based on opacity and fear and that is itself a cause not a symptom of the current problem but that it provides an opportunity for government support that will eventually be costless
c. in fact intends to make a profit off its investment in Citigroup (in that regard, the Government will appoint a prominent financial manager to oversee investment in Citigroup, including taking board seat).

10. Recognizing efforts to date have been inadequate, Citigroup creates and implements ongoing shareholder and financial community communication plan that emphasizes listening, transparency and frequent contact; Citigroup hires outsides advisors as necessary to address this plan.