Sunday, December 2, 2012

Pride, prejudice & parachutes!

Despite the heroic 'parachute' attempt by the US government, Citi's landing seems hardly soft

Let us pay our humble tributes to all those unfortunate doomsayers (the list includes us too!) who doubted the optimistic presentation of Citigroup CEO Vikram Pandit on the announcement of Citigroups results for the quarter ending September 2008. His speech was peppered with innuendoes like "We are proud..." and "We are making excellent progress..." And our response to that, was a plain and simple "Bah!"

We admit, our game is up. Citigroup's latest bailout from the Fed is definite 'progress' and Citi deserves to take 'pride' in it too! US Treasury (which itself seems to be a likely bailout candidate as it tries to water down recessionary fires here and there with buckets of cash!), Federal Reserve and FDIC have agreed to a $326 billion bailout package for Citi Group. The Treasury will give $20 billion in loan and $306 billion as guarantee for Citi’s toxic assets. In return, Citigroup will issue $7 billion in preferred stock and warrants to the Treasury and FDIC for approximately 254 million common shares of the company at a strike price of $10.61. Besides, Citi has agreed to halt dividend payments for the next three years and agreed for scrutiny on executive compensation.

But are Citi's demons truly licked? A few days earlier, on November 18, 2008, Citigroup announced that it would cut down more than 50,000 of its jobs across the board. The biggest problem for Citi is its huge size which is based on ‘the diversification of financial services model’. In terms of revenue per employee, Citi registers some $488,000, after factoring the job cuts, way below Bank of America’s $568,000 and JP Morgan’s $644,000.


Source : IIPM Editorial, 2012.An Initiative of IIPM, Malay Chaudhuri

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