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Fed Govt to Net $8Bn Profit on Citibank Bailout

Returns on Fed Bank Bailouts Vindicate Obama TARP Plan

Returns on Fed Bank Bailouts Vindicate Obama TARP Plan

While Republican detractors continue to hurl gratuitous criticisms along with the ‘wingnuttery‘ of the conservative lunatic fringe, President Obama is beginning to look like a financial guru with investment performance that puts even the brightest Wall Streeters to shame.  Among the banks that rule Wall Street, Citigroup got a bailout that was bigger than the rest. Now the company is about to pay a king’s ransom for its federal rescue, and making the Obama administration better stock-pickers and investment gurus than even the most stellar performers on Wall Street.  This is on top of earlier returns from Morgan Stanley, Goldman Sachs, et al, that we reported about here as the returns rolled in during 3rd & 4th Q reporting season last year. 

The Administration is presently making final preparations to sell its stake in the New York bank, according to one of my reliable industry sources. At Friday’s closing price for Citibank, the sale would net over $8 billion – by far the largest profit returned from any firm that accepted bailout funds, and the transaction would be the second-largest stock sale in history. If the Administration decides on a hold-timing strategy, and the Market continues to perform at current levels under the Obama Recovery, the Administration could easily double those returns by 4Q this year — just in time for the November election cycle.  


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On paper, the government’s 27% stake has grown in value to some $33 billion. The size of the deal in the works has Wall Street buzzing – actually, the proper word would be more like slobbering (with greed) – over the enormous fees and commissions resulting from the sale. Only the stock offering by Japan’s Nippon Telegraph and Telephone, which raised $36.8 billion in 1987, was larger, according to archival data from Thomson Reuters.

Leading financial firms, including J.P. Morgan Chase, Morgan Stanley and Goldman Sachs, are vying to be chosen as the deal’s underwriters to gain the prestige of managing a historic stock sale as well as the fees from investors who buy the shares. To improve their chances, some banks, such as Goldman Sachs, are offering their services to the Treasury Department at almost no cost, industry officials familiar with the matter said.

The windfall expected from the stock sale would amount to a validation of the Obama rescue plan approved by the Democratic-led Congress, and championed by the Federal Reserve during the height of the financial crisis, when the banking system neared the brink of collapse. If the sale proceeds as planned, Citigroup would be able to cut nearly all of its ties to the $700 billion Troubled Assets Relief Program (TARP). Meanwhile, the administration could highlight the enormous profits generated from the unpopular bank bailouts.  Read more here.

Source:  Washington Post                           Photo: Blogspot



Elison Elliott

Elison Elliott , a native of Belize, is a professional investment advisor for the Global Wealth and Invesment Management division of a major worldwide financial services firm. His experience in the global financial markets span over 18 years in both the public and private sectors. Elison is a graduate, cum laude, of the City College of New York (CUNY), and completed his Masters-level course requirements in the International Finance & Banking (IFB) program at Columbia University (SIPA). Elison lives in the northern suburbs of New York City. He is an avid student of sovereign risk, global economics and market trends, and enjoys writing, aviation, outdoor adventure, International travel, cultural exploration and world affairs.

Areas of Focus:
Market Trends; International Finance; Global Trade; Economics