Citibank news is good for the upper management group at Citigroup! A Citibank bailout marks the third time in recent months that Uncle Sam – and by extension you and I – offers a helping hand and million of dollars in an attempt to keep a financial institution from going under.
Citibank Bailout Prevents Citibank Bankruptcy … For Now
WMDT ABC reports that $20 billion from the $700 billion bailout package will indeed be invested in Citibank. In return, Uncle Sam – and you and I – receive $7 billion of “preferred shares.” But wait, there is more!
The Washington Post reports that in addition to the bailout funds, Uncle Sam will also take on the role of protector against future losses. While Citigroup would have to eat the next $29 billion in losses it shows, the United States government will cover “most of the losses beyond that amount.”
Wagging tongues assert that what is needed, really, is Citibank bankrupt, but the Citibank bailout in addition to the prior investment of $25 billion that Uncle Sam already dropped into Citigroup, may halt this process.
Citigroup Bailout and Its Effect on Shareholders
The Citigroup bailout is not as favorable for shareholders as early estimates had hoped. This Citi bailout package is supposedly going to require a curtailing of executive level pay, but it most certainly decreases share dividends to $0.01/share/quarter for a period of three years.
Citibank Bailout Rewards Bad Behavior
Citibank business practices have been making headlines over the last decade, most notably its 2004 short sale on the European bond market and its theft of funds from 53,000 credit card customer accounts.
Lest you forget, it was Citigroup’s 1998 lobbying efforts, as reported by Open Secrets, that paved the way for banks to get involved in other forms of business such as insurance. Citibank lobbyists were also front and center when bankruptcy reform was discussed, and consumers currently hoping for Chapter 7 relief know how much more difficult this process has become.
Beholden to politicians, Citibank has heavily investment in the American political process, favoring the Democratic Party with $2,248,481 versus the Republican Party which only received $1,483,884. This totals $3,736,915 in overall political donations that perhaps could have been better spent protecting the company from its impending losses.
Citibank Bailout May Not Halt Layoffs
There is no word if the Citigroup bailout will prevent the loss of more than 50,000 Bay Area jobs the San Francisco Chronicle reported on last week.
Sources: http://www.wmdt.com/topstory/topstory.asp?id=3981; http://www.washingtonpost.com/wp-dyn/content/article/2008/11/23/AR2008112301665.html; http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN2636973720080826; http://www.opensecrets.org/orgs/summary.php?ID=D000000071&Name=Citigroup+Inc; http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/17/BURD146AIA.DTL