You have quite a few creditors and you have very little money.You want to pay your biggest creditor to escape his grip on you.You decide to pay him and announce it publicly.What will happen?
Other creditors will be peeved and spread the word around.When you look for new creditors(investors), they are not to be found.
This what us individuals who have credit will think.Not giant finance companies.
Strange is the observation that Govt. should have started selling its stakes,it is akin to asking your creditor to pass on your credit to him to somebody else .
Juxtapose this with cooking books in US and Abu Dhabi.
Just when Vikram S. Pandit thought he was out, Washington is pulling him back in.
Two days after Mr. Pandit trumpeted news that Citigroup would start untangling itself from the federal government, his bank stumbled — this time, on Wall Street. Badly misreading the financial markets, the company struggled on Wednesday to raise the money it needed to repay its bailout funds.
While Citigroup managed to raise $20.5 billion in the stock market and will forge ahead with the repayment, the sale went so poorly that anxious Treasury officials reversed course and delayed their plans to start unwinding the government’s stake in the company immediately, according to a person briefed on the matter.
The turnabout represents a significant setback for Mr. Pandit and his efforts to free Citigroup from government control. It also underscores the lingering worries over Citigroup’s financial health, as well as concerns that federal officials may have let Citigroup exit the bailout program too quickly.
“There are questions about why the deal didn’t get done the way it was planned,” said Michael Mayo, a banking industry analyst with Calyon Securities. “I am not sure who has the answers.”
The finger-pointing has already begun. Citigroup officials complained Wednesday that the Treasury should have begun selling its stake in the company months ago, to encourage private investors to buy the new stock. After Citigroup pressed them to sell a small stake alongside its enormous offer, Treasury officials said they warned the bank that there might not be enough investor appetite for a deal.
Federal officials, meanwhile, argued among themselves over whether Citigroup and another big bank, Wells Fargo, should have been allowed to repay the government and sell new stock at the same time. Wells Fargo, which like Citigroup announced that it would repay the government on Monday, outflanked Citigroup and sold more than $12.25 billion of its stock on Tuesday.
After the close of trading in New York, Citigroup priced its new shares at $3.15 each, below the $3.25 price at which the government assumed its one-third stake in the company. Before the sale, the share price of Citigroup fell 11 cents to $3.45, as investors braced for the new stock.
Rather than suffer a loss for taxpayers, the Treasury Department will now hold on to the $5 billion stake it planned to sell alongside Citigroup’s own $17 billion stock offering. After an initial 90-day delay, the government will try to sell its entire stake — about 7.7 billion shares — over the six to 12 months.
The trouble began on Tuesday, when Citigroup bankers started taking orders from investors for the new shares. Word began to seep out in the markets that the bank was having a hard time finding investors willing to buy the stock at the price at which Citigroup hoped to sell it.
By Tuesday evening, Treasury officials got word that the stock might be priced below $3.25 a share. By Wednesday morning, they concluded that the government would forgo selling its shares immediately.
Citigroup executives had hoped that repaying the federal aid that the company had received under the Troubled Asset Relief Program would help Citigroup shed its stigma as the last Wall Street giant still tethered to Washington.
While Citigroup is continuing with plans for repayment, it now seems certain the government will maintain its entire stake in the bank for many months. That might make the shares less attractive to investors.
The development came on the same day that the Abu Dhabi Investment Authority filed a multibillion-dollar arbitration claim on Wednesday accusing the bank of “fraudulent misrepresentation” after its $7.5 billion investment in Citigroup went south. A Citigroup spokesman said the claims were “entirely without merit” and the bank planned to vigorously defend itself against them.
Questions also swirled about a waiver that allowed Citigroup to preserve a $38 billion tax deduction — a move that administration officials say was appropriate given that the intent of the tax rule. Still, they spent the day trying to stamp out potential outcry.
Analysts raised fresh doubts about Citigroup’s ability to nurse itself back to financial health. The bank faces a $10.1 billion accounting charge next quarter tied to the repayment plans, its eighth consecutive quarter without a significant profit. Even after winning some six months of relief, Citigroup’s finances will be strained as it brings billions of dollars of off-balance securities back onto its books.
http://www.nytimes.com/2009/12/17/business/global/17citi.html?_r=1&hp
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