February 23rd, 2009
12:09 PM ET

Financial Dispatch: Saving Citigroup

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/US/12/22/bailout.accountability/art.citi.gi.jpg]

Andrew Torgan
CNN Financial News Producer

Citigroup is said to be in discussions with regulators about a plan for the federal government to take a larger ownership stake in the bank. The Wall Street Journal, citing sources familiar with the matter, is reporting that the government - and by extension taxpayers - could wind up holding as much as 40% of Citigroup's common stock.

The potential move would give the government its biggest ownership of a financial-services company since the September bailout of insurance giant AIG, which left taxpayers with an 80% stake.

Under the scenario reportedly being considered, a substantial chunk of the $45 billion in preferred Citigroup shares held by the government as part of the $700 billion bailout of the financial system would be converted into common stock. That means no new taxpayer money will be used.

The Wall Street Journal is also reporting that advisers to the Treasury Dept. have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors and Chrysler, in case the two automakers need it.

While acknowledging the grimness of the task, administration officials involved in the talks told the Journal they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings - characterizing the latest efforts as “due diligence” on the part of the advisers and stressing that bankruptcy financing may not be necessary.

A group of leading economists is now forecasting a far deeper and more painful recession ahead in the first half of the year, but a modest pickup in the second half of 2009, followed by a solid recovery in 2010.

According to a survey of 47 top forecasters conducted by the National Association of Business Economics in late January and early February, the economy is expected to decline at a 5% rate in the first quarter, even sharper than the 3.8% drop recorded in the fourth quarter of last year. And the group is forecasting another 1.7% drop in economic activity in the second quarter.

Gas prices dropped 7-tenths of a cent overnight to $1.910 a gallon ($1.91 for graphics). 9 states and the District of Columbia have regular unleaded gas prices of $2 and higher. 41 states have regular unleaded gas prices below $2. The highest gas prices are in Alaska ($2.495). The cheapest gas prices are in Missouri ($1.696)

Finally, while many major airlines have been finding new ways to charge passengers additional fees, at least one effort has apparently failed.

US Airways announced today it will no longer charge coach passengers $1 to $2 for non-alcoholic beverages beginning March 1. The carrier is still charging for checked bags, pillows and blankets, and choice seats however - and alcoholic beverages will still cost $7 a pop.

Filed under: Andrew Torgan • Economy • Finance • Gas Prices • Oil • Wall St.
soundoff (9 Responses)
  1. Mari, Salt Lake City

    Citibank should be 'allowed' to fail, why bail out a bank that got greedy?
    They made poor decisions, let them 'live' with the consequences!

    NO ONE is going to nationalize banks! Stop listening to Limbaugh-the-comedian and the rest of the haters of "Faux News" and........please THINK for yourselves and do your own research!

    February 23, 2009 at 7:35 pm |
  2. Tommy Cornstubble

    enough is enough, this is just away to much money going in the wrong direction, we would be better served if we just burned the money in a trash can, at least some more rich people could not get their hands on it, but that is just the way government works, I am about ready for some of the changes that where promised, not the same old way of doing things. Between Bush and Obama its hard to tell the difference at this point, as to which one can waste the most money.

    February 23, 2009 at 5:46 pm |
  3. Linda Way

    I just don't get it! I mean seriously folks, we as taxpayers are forced to keep our credit in good standing, and as a business owner I am forced to work in this tough economy,Big bank excs. on the otherhand can turn down the loan requests of the hardworkers of the country, tell them that they are not credit worthy, take very large bonuses home every year,decide that these bonuses are not enough, take home even more. Then have the nerve to ask congress for a bail-out. and still not be aware that their banks are failing. I think that they are just not that stupid. If my business is'nt doing well, I have a pretty good idea about that, I just don't take home a bonus check that would bankrupt my business. I was talking with someone who knows more than I do about money, we were discussing the situation, he asked me if I would be willing to help my neighbor save his house by giving him $50.00, I said of course, he said what about $5000.00, I said maybe not so much, but maybe. Now I feel that I have given them the $5000.00, and now they are complaining about the carpet. where does this end??????

    February 23, 2009 at 4:45 pm |
  4. Natalie

    Why keep giving more money to a bank that has ceased to lend or renegotiate mortgages? I have a solution. Those homeowners who bought homes financed by Citibank that they could not afford and have continuously been "slow pays or no pays" should go into foreclosure. Those who had ARM"s and paid in good faith until the interest rates skyrocketed should be allowed to continue to pay at the lower rate. The bank will get more than what they would get at auction and a family remains in there home. The gripe about the bank or (banks)taking a financial loss is nonsense. With the state of the economy today that is inevitable. All you can do is minimize your losses and keep people in there homes simultaneously. It is the humane thing to do.

    February 23, 2009 at 4:17 pm |
  5. Neo

    .... or they could just fail. I'm concerned about the bank bailout. I like the idea of having a federal bank to compete with commercial banks over this.

    February 23, 2009 at 3:42 pm |
  6. Joe G. (From Illinois)

    Anyone of you ever watched “This Old House.” Anyhow this plot is like this: A rotten house “Of sentimental value” gets gutted to its frame and then most often repaired piece by piece or put on wheels to a different location.. Basically the theme is always the same.. “Better tear down the old thing and build another from scratch because new one will cost you 4 times cheaper. If Citigroup closes its doors.. Another one will take its place “If the economic situation warrants' it.. Why does Obama want to inflate the Hosing Bubble again?? “The Housing Bubble has already bursted!!!” What a waste of money that does not belong to him.

    February 23, 2009 at 3:19 pm |
  7. Annie Kate

    I hope that solid recovery predicted for next year is correct. I'd like to know what they base their forecast on though and what has to happen for the economy to respond like that. If the stimulus package is the source of a quick recovery I wonder if the GOP will ever admit to it – especially those governors who say they are not going to take the money.

    February 23, 2009 at 1:07 pm |
  8. earle,florida

    This bank will be belly-up in two months max.,and we (taxpayers) are going to dump more money into the "Critical Care Unit" so what's left (of this unsalvageable organ donar) of profitable commercial accounts have time to exit ,I don't think so,...

    February 23, 2009 at 12:52 pm |
  9. Michael "C" Lorton, Virginia

    Pretty soon the government will own banks---next stop-–Wall Street.

    February 23, 2009 at 12:48 pm |