Normally if you or I buy more than we can pay for we wake up to the fact that we are broke. Not so with Citigroup. As taxpayers we gave Citigroup $20 billion in November 2007, and guaranteed $300 billion in loans on Citi’s books. You and I also gave Citigroup $25 billion from the Troubled Asset Relief Program – the TARP program. If you or I invested like that we would be broke. Citigroup cannot show where they helped a lot of homeowners, but did anger the industry when they agreed to let judges modify loans.
The fear is that one financial institution – Citigroup – might require most of the second half ($350 billion) of TARP assistance. “It is hard to escape the conclusion that Citi is going to consume all of the TARP money and then some as the credit cycle troughs,” Christopher Whalen, a managing director at Institutional Risk Analytics and a former staffer at the Federal Reserve Bank of New York said in a research note Tuesday.
Citigroup tried to buy Wachovia Bank with our money, but Wells fargo prevailed. The New York bank has reported four straight quarters of losses totaling $20.2 billion through September 2008 and is expected to post yet another loss when it releases fourth-quarter results on Jan. 22. In another round of brain surgery, Morgan Stanley is likely to pay Citigroup between $2 billion and $3 billion for a 51 percent stake in the brokerage Smith Barney, a person close to the negotiations said.