Treasury, Citigroup Discuss Partial Takeover; Nationalization Fears Hit Stocks

The Washington Times (Washington, DC), February 24, 2009 | Go to article overview

Treasury, Citigroup Discuss Partial Takeover; Nationalization Fears Hit Stocks


Byline: Patrice Hill, THE WASHINGTON TIMES

The federal government is negotiating a deal with Citigroup that may expand its ownership share to the point that it effectively nationalizes the nation's third-largest bank.

The Treasury and bank regulators sought to reassure investors Monday by pledging to stand behind Citi and other major banks, outlining a new strategy of allowing banks to convert Treasury's preferred stock in the banks to common shares. The move boosts bank capital without having to invest more taxpayer money, but also gives the government substantial ownership of the firms - raising the specter of nationalization.

The Treasury statement temporarily spurred sagging bank shares Monday morning - particularly those of Citi and Bank of America. The stock downdraft accelerated midday after the Standard & Poor's 500 Index broke through an 11-year low set on Nov. 20 and fell to its lowest level since April 1997. The Dow Jones Industrial Average ended down nearly 251 points at 7,114, its lowest close since May 1997.

Nationalization is already beginning, despite the Obama administration's strenuous attempts to prevent the slide toward government takeover of major banks, said Joseph Brusuelas, an analyst at Moody's Economy.com. He said none of the big money-center banks like Citi and Bank of America seems likely to pass a rigorous stress test that Treasury plans to impose. The negotiations with Citigroup show that the New York bank may have already accepted the likely outcome.

Negotiations with Citigroup center on whether the government will take as much as 40 percent ownership of the bank or as little as 25 percent through conversion of preferred shares into common shares. A 40 percent stake would make the government by far the bank's largest shareholder, and most analysts consider that to be effective nationalization. Some say the government crosses that threshold at 25 percent.

For weeks, the administration and Congress have been exercising effective ownership of banks by dictating what executive compensation will be allowed and even instructing Citi not to take delivery of a corporate jet it ordered during its salad days.

The question of whether to nationalize banks has come and gone. De facto nationalization of a portion of the banking industry is already under way, Mr. Brusuelas said. No one but the government is willing to step forward and give the banks the money they need to survive an onslaught of rising loan problems, he said.

Britain and several other European countries already have nationalized some of their biggest banks, and the United States in September took control over three of its largest financial institutions - Fannie Mae, Freddie Mac and American International Group, once the largest insurer. But it would be unprecedented for the federal government to take over a private bank, something that did not occur even in the depths of the Great Depression when thousands of banks were failing. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Treasury, Citigroup Discuss Partial Takeover; Nationalization Fears Hit Stocks
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.