Fallout: The Financial Crisis

U.S. taxpayers now own Citigroup stock

Dan Grech Feb 27, 2009
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Fallout: The Financial Crisis

U.S. taxpayers now own Citigroup stock

Dan Grech Feb 27, 2009
HTML EMBED:
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TEXT OF INTERVIEW

Bill Radke: The government just got deeper into banking giant Citigroup.This morning, the Treasury Department announced it’s acquiring 36 percent of Citi’s common stock. Marketplace’s Dan Grech is with us now. Dan, Did taxpayers just give Citigroup more money?

Dan Grech: Well, the previous two bailouts were for $45 billion, and we’re not adding a cent to those previous bailouts. What we’re doing is we’re converting preferred stock to common stock. And common stock is the last money that gets paid back in the liquidation. So basically, taxpayers are now on the hook for a lot more.

Radke: And why did the administration decide this was the right move now?

Grech: Well, that’s because Citi is in such trouble. I mean, it right now as an estimated $300 million in risky assets, and it has to pay therefore much more whenever it wants to borrow money. So if it has to pay more to borrow money, that makes it much more difficult for Citi to make money. And it’s losing the confidence of its corporate clients as well as investors. If there’s a doubt that Citi will be able to exist in a year or two, big companies aren’t going to want to do business with them anymore.

Radke: Dan, the markets have been screaming for clarity from the White House on its banking policy. How much clarity does this deal give us about Citigroup’s future?

Grech: Well, I think this says in no uncertain terms that the government just isn’t going to let Citigroup fail. I think after they let Lehman Brothers go bankrupt in September and then watched the havoc that that has caused in the credit markets ever since, they’ve basically said that they are willing to shift the risk of Citigroup from shareholders onto taxpayers.

Radke: Marketplace’s Dan Grech. Thank you.

Grech: Thanks, Bill.

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