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Citigroup Rescue or United States rescue?

Submitted by on Wednesday, 26 November 2008No Comment

Citigroup Inc. Chief Executive Officer Vikram Pandit said the U.S. government pumped $20 billion into the bank to send a signal that regulators will stand behind the country’s financial system.

“We’re in 109 countries around the world, and Citi’s strength is viewed to be America’s strength in many ways,” Pandit, said in an interview with PBS’s Charlie Rose show that aired yesterday. The bailout “was really about the entire financial system. It was about confidence in the financial system. It was about stability,” he said.

Citigroup’s stock last week fell below $5 for the first time since 1994, sparking concern that customers might pull their money and destabilize the New York-based bank, which has $2 trillion in assets. The government on Nov. 23 agreed to support the company with a $20 billion capital injection and a shield against losses on $306 billion of mortgages and other loans.

Pandit, who took over as Citigroup’s chief 11 months ago, was making his first public comments since the deal with the government was announced. The guaranteed assets had a face value of about $340 billion to $350 billion, he said, before they were written down amid the credit crisis.

All banks have experienced declines in the value of their loans and securities partly because so many of the assets are being dumped into the market at the same time, he said.

“Some of them are toxic, some of them are good,” Pandit said. “There is just too many of them. And there has to be a plan to clean out these assets and have institutions and/or funds buy them, and the Treasury has been working on them.”

Citigroup’s deal, which followed a $25 billion infusion from the Treasury in October, drew criticism from U.S. legislators including Senate Banking Committee Chairman Christopher Dodd. The government should have struck a better deal and insisted on management changes, Dodd said yesterday.

The bank has reported four straight quarterly losses totaling $20 billion. The stock price plunged as low as $3.77 a share on Nov. 21. Since the government pledged its support, the stock has rallied 61 percent to close yesterday at $6.08 in New York Stock Exchange composite trading.

“Some of the issues about Citi’s assets and asset quality were being translated into people taking action on the stock, not only some people who had stock they were selling, but particularly short sellers,” Pandit said, referring to investors who try to profit from betting on a stock’s decline.

Pandit, who was chosen as CEO after the ouster of Charles O. “Chuck” Prince, laid blame for the year of losses and decimated stock on prior management’s housing-related investments.

“What went wrong is we had tremendous concentration in the sense that we put a lot of our money to work against U.S. real estate,” Pandit said. “It’s a lot easier to get into these situations than it is to get out of them.”

Pandit said Citigroup, the second-biggest U.S. bank by assets, will focus on serving corporate clients and wealth management, and will emerge as a “high-end retail bank.”

“We’ve gotten rid of a lot of businesses,” he said. “We’re going to get rid of a lot more over time.”

Citigroup spokesman Mike Hanretta said that in addition to serving affluent customers worldwide, “Citi will continue to serve a broad spectrum of retail financial services clients in the U.S. and other selected global markets.”

The company has received a total of $45 billion in cash infusions from the government over the past month. The U.S. aid package left the bank’s current management in place, attracting criticism from investors such as Peter Solomon, a former Lehman Brothers Holdings Inc. vice chairman and founder of Peter J. Solomon & Co. in New York.

“It’s very hard to say we should invest all this money in Citigroup and leave Citigroup management totally intact,” Solomon said in a phone interview. “If a private-equity firm made an investment in Citigroup, how many board members would it ask for?”

Asked whether Citigroup needed to change executives, Pandit said he “can completely understand how people on Main Street, people who are not close to this industry, would be furious at what’s happened.” The most important thing now, he said, “is to make sure that we have a plan for going forward.”

“There are some managements that have already gone; there are some managements that may go,” Pandit said. “If you start throwing everybody under the bus, we’re going to need a very large bus.”

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