Thursday, November 13, 2008
citi approaches nationalization
Citi might well turn out to be Hank Paulson's largest and biggest headache. There's no one he can sell it to -- it's far too big already. Which means that Paulson's only real option, if things deteriorate much further from here, is nationalization. Bits of it could be sold, at a price -- the retail bank to Santander, perhaps; other bits to JP Morgan or Goldman Sachs -- but the losses to the taxpayer would be enormous, and the disruption associated with breaking Citi up and then trying to integrate the pieces in the middle of a major financial crisis would likely be devastating to the economy.
In rough seas, it helps to be big and heavy -- up to the point at which it helps to be smaller and lighter. Citi is the biggest and heaviest ship in a storm of unprecedented magnitude, she's creaking badly, and there's nothing the captain can do about it: you can't fix a vessel like that in the middle of a hurricane. All you can do is hold on tight, and pray.
UPDATE: citi will cut 60,000 employees in a 25% reduction of workforce.
UPDATEL this from john hempton of bronte capital.