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Thursday, November 13, 2008

 

citi approaches nationalization


institutional risk analyst has already predicted the outright nationalization of C, JPM and perhaps BAC in 2009, but the recent slide in citi stock -- as low as $8.27 today -- has felix salmon on board as well.

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.

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every road seems to wind up at nationalization.

 
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funny how nobody's ever interested in nationalizing things when profits are up...

 
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