Game Over for Citi

posted by Nima

January 14, 2009 · Posted in Business

Citigroup is beginning to fall apart. As already mentioned 2 months ago the company has no other choice but to sell off its units.

Reuters writes

Citigroup Inc faced growing uncertainty on Wednesday about whether it could ever function well, leading investors to drive its shares down below $5.00 to their lowest level since the bank won a government rescue in November.

As I mentioned in my article, once Citi begins to actually offer units on the market, it will be unavoidable to put the cards on the table and expose the house of cards.

Once the world’s largest bank, Citigroup is expected to shrink by about a third as it focuses on corporate, investment and retail banking and trims its trading operations, a person familiar with the plan said. Citigroup will also put businesses and assets it no longer wants into a separate structure, with an eye toward eventual sales, the person said.

I wouldn’t be surprised if in this process the Citi stock continues to tumble toward zero, just as Fannie Mae and Freddit Mac did.

The annual cost of protecting $10 million of Citigroup debt against default for five years rose to $410,000 on Wednesday from $265,000 on Tuesday, according to Phoenix Partners Group.

I wouldn’t be surprised if this cost goes up exponentially during that same process.

And once they are done dealing with their balance sheet, the big question will be: “Hey, who wants these toxic 1.1 trillion off-balance sheet assets?” Expect the Fed and the Treasury to heroically jump in and have the taxpayer foot the bill.