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Marketplace Scratch Pad

It just gets weirder and weirder

Scott Jagow Dec 17, 2009

Hardly an hour goes by without another “wow” moment with the banks. I’ve got two of them for you. First of all, the Citigroup getting out of TARP thing? Ain’t gonna happen.

From the New York Times:

Just when (Citigroup CEO) Vikram S. Pandit thought he was out, Washington is pulling him back in.

Two days after Mr. Pandit trumpeted news that Citigroup would start untangling itself from the federal government, his bank stumbled — this time, on Wall Street. Badly misreading the financial markets, the company struggled on Wednesday to raise the money it needed to repay its bailout funds.

Citi did manage to raise the $20 billion, but investors were so tepid about the bank’s share price, the government decided to hang on to its stake instead of selling it.

That’s bad news for Citigroup’s goal of independence. It could be good news for taxpayers, unless of course, Citi’s fortunes turn for the worse, and we rue the day we’ve could’ve gotten a whopping $3.15 a share.

The Treasury now plans to sell its 34% stake in pieces over the next year, although it agreed not to sell any stock in the next 90 days, so if Citi’s best price comes in the next three months, the taxpayers aren’t getting it. More from the Times:

Citigroup officials maintain that they did a good job considering the tough market conditions and should be lauded for pulling off the largest equity offering in American history. Some analysts have their doubts.

“There are questions about why the deal didn’t get done the way it was planned,” said Michael Mayo, a banking industry analyst with Calyon Securities. “I am not sure who has the answers.”

Join the club.

Elsewhere, Morgan Stanley is planning to hand over 5 entire office buildings to its lender, Blackstone Group. Morgan Stanley bought the San Francisco properties two years ago at about the market’s peak.

Let me be clear. Morgan Stanley is just giving the buildings away. It’s doing exactly what many underwater homeowners are doing – mailing the keys in and walking away from the loan. More from Bloomberg:

The San Francisco transfer would mark the second real estate deal to unravel this year for Morgan Stanley, which bet big on the property markets as prices were rising. The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities. U.S. commercial real estate prices have dropped 43 percent from October 2007’s peak, Moody’s Investors Service said last month.

“It’s not surprising this deal ran into trouble,” Michael Knott, senior analyst at Green Street Advisors in Newport Beach, California, said in an interview. “It was eye-opening among a group of eye-opening deals. There was almost no price too high in 2007 for office space in top gateway markets.”

To sum up these new developments: What. A. Mess.

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