Citigroup Won't Exist in 6 Months

Today, Citi announced it had sold its Smith Barney brokerage division to Morgan Stanley, beginning the break-up of what was once the largest financial services firm in the world.  But this is just the beginning.  Citi grew with leverage and never fully melded its disparate operations, meaning the company is not only exposed to toxic assets to a high degree but was never a functional company to begin with.  Leverage and good times can mask many problems.

Last November, Citi received $20 billion in capital from the TARP along with hundreds of billions in loan guarantees.  Most observers did not believe this would be enoughAccording to Marketwatch, the financial company plans to shrink its size by 1/3 by selling off other divisions.  But that brings up an interesting conundrum for its management.  Right now, Citi is kept alive only through the generosity of the government.  The govenment keeps Citi alive because it is supposedely "too big to fail."  But at what point in Citi's incredible shrinking act does it stop being "too big to fail?"  At what point does the Treasury and the Fed throw in the towel?

Citi's stock is down below $5 today, and many are buzzing about the future of the once mighty financial titan.  For those who thought the financial crisis is over, this is a reminder that as long as the general economy is weakening, and real estate continues to decline, we're going to have more pressure and failures in the banking and financial sector.

 

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • JRodgers

    January 15, 2009

    The government is doing the right thing. It was too big to fail and the government couldn't let it, but ultimately it is going to need to disassemble.

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