The market has to digest Citi bailout
A Citi Bailout was expected as its stock nose dived throughout the week. Starting with a value of $9.36 on Monday, the stock slowly trickled down to a close of $3.77 per share. On Sunday night it was released that a bailout of Citi was being discussed between Washington and Citi.
This bailout will be one of the most interesting because it is the first following the change in the TARP program. After Paulson changed the gameplan to buying stock in banks rather than buying troubled assets, it will be interesting to see how the government and market respond.
Citi is different this time because its almost bankrupt. Buying stock in the company would involve buying and already troubled company and hoping that dilution is the best solution to raising money for these companies. Can buying stock save a company fast enough, or will the gameplan have to be changed back to buying the assets of each bank.
This bailout will set a precedent both in the understanding of investors to the new TARP program and for the governments actions. We will have to see how the market digests news that the government is taking either the first or second plan to aid Citi. In any event a bailout will happen, will it be a buyout or a bailout we’ll just have to see.
Paulson is going to face sharp criticism either way. He needs to stick with what he’s been doing or hes going to find himself again facing the heat of Congress. His chances of getting another $350 Billion to bring the total to $700 Billion ride on how well this Citi transaction works out.
