They say the Citi never sleeps. But can shareholders at least rest a little easier, now that Washington has bailed out the nation’s second largest bank?
In a deal announced Sunday the government agreed to shoulder most of the potential losses from $306 billion in Citigroup's risky assets.
The government will also inject $20 billion in new capital, its biggest effort yet to prevent a big bank from failing.
The bailout also gives the government the right to buy another 4.5 percent equity stake, and marks its latest effort to contain a widening financial crisis that has already brought down Bear Stearns, Lehman Brothers and Washington Mutual.
“This is a really great opportunity for Citigroup,” says Jaime Peters, Morningstar Equity analyst on Fast Money. “It gives Citigroup an opportunity to rearrange their business so they can survive in the long run."
Shares of Citigroup surged as much as 72 percent on Monday. The price of insuring Citigroup bonds against default fell by half. "All in all, these actions should settle market jitters surrounding the company for now," CreditSights Inc analyst David Hendler wrote.
Credit Default Swap Spreads (BPS)
Citigroup 499 250
Morgan Stanley 518 450
Goldman Sachs 385 307
Bank of America 195 185
GE 510 475
The package also gives Chief Executive Vikram Pandit more time to shed assets, slash payroll and boost efficiency.
“They’re taking the deep cuts that are necessary for this company to survive,” adds Peters.
Pandit "deserves a vote of confidence," Saudi Prince Alwaleed bin Talal, Citigroup's largest individual investor, told CNBC . "I am personally committed to Citigroup. No doubt about that." Alwaleed agreed last week to increase his Citigroup stake to 5 percent from less than 4 percent.
As you might imagine, Carl Icahn would like to see a proxy fight and turnover Citi's top management. On his blog IcahnReport.com he writes, "One of the big reasons why this greed and recklessness is allowed to flourish is that many states enable corporate managers and boards to perpetuate themselves in office, no matter how incompetent they are. Most shareholders can’t fight back effectively."
If you’d like to sign on and help Carl Icahn in his crusade to hold management accountable visit his website.