The U.S. Department of the Treasury and the central bank – Federal Reserve, over the weekend considered a plan to rescue Citigroup Inc., whose shares lost 60 percent of their value last week due to market concerns about the health of the bank’s balance sheet.
The Treasury Department and the Federal Reserve (FED) are developing a strategy to stabilize Citigroup, and one option is to take over part of the risky assets from the bank’s balance sheet to free up space for the bank and allow for a better position to raise capital, sources familiar with the discussions told U.S. media. A spokesperson for Citigroup, based in New York, declined to comment on media reports.
Citigroup’s stock lost 60 percent of its value last week, reflecting a crisis of confidence among investors. They are concerned that all the risky debt on Citigroup’s balance sheet could turn into losses as the economic situation worsens and markets become increasingly volatile, making it nearly impossible to recover from such losses. However, the U.S. government does not intend to allow Citigroup to collapse, U.S. TV networks reported, citing statements from administration officials.
Citigroup is a large global financial group, and its collapse would devastate already fragile financial and economic conditions worldwide. The company operates in over 100 countries. Analysts consider Citigroup to be the most vulnerable among the large U.S. banks, especially after it failed to acquire Wachovia Corp., which would have significantly strengthened its balance sheet with its domestic deposits. Citigroup has already received $25 billion in aid from the government’s $700 billion program to stabilize the financial sector, and in return, the government took an equity stake in the bank. (H)
