Citigroup Seeks To Weather Storm
MELISSA BLOCK, host:
One of the world's great banking empires seems to be shrinking fast. This week Citigroup watched its stock fall from $9 all the way down to $3 and change although it did close today at $4. For comparison just a month ago a share in Citigroup would have cost you 42 bucks. Now, the bank's executives are in damage control mode and NPR's Jim Zarroli joins us to help explain what's going on. Jim, why is Citigroup in so much trouble right now?
JIM ZARROLI: Well, I think it just boils down to the fact that its share prices fallen so much, it's lost half its value in three days. Now, the company is saying its balance sheet is still strong, you know, it has a healthy mix of assets, but the problem is when the share price falls so much, it just gets harder and harder for banks to raise the money they need. Banks typically need to raise a lot of money in the overnight lending market, but investors see the share price falling, they start to get nervous about doing business with them. So, Citigroup is under a lot of pressure to get it's share price up.
BLOCK: And is that what's making Citigroup stock fall so much?
ZARROLI: Yeah, I think it's partly because people still have questions about the extent of Citigroup's mortgage losses, but also has a lot to do with the fact that Citigroup just doesn't inspire confidence on Wall Street, there is this common view that it has been mismanaged for years. The straw that broke the camel's back recently was the collapse of the Wachovia merger. Citigroup came out in October, early October I think and said it was acquiring Wachovia. Then three years later, Wells Fargo came out and sort of snatched it away from them and it really made Citigroup look bad. Now, in normal times this wouldn't be such a big deal for Citigroup, but you know there is so much nervousness now in the markets it doesn't take much for confidence in a company to just collapse. So, people are looking at this slide in Citigroup's shares and started to get really nervous.
BLOCK: Well, what could Citigroup do right now to keep that collapse in conference from going all the way?
ZARROLI: It doesn't have a lot of good options. It is so big that there aren't a lot of U.S. companies that could absorb it. It could sell itself to foreign investors. The problem is some of the wealthiest investors right now are sovereign wealth funds. They are barred from owning U.S. banks because they are connected to foreign governments. So, really the only option left for Citigroup is to peel off some assets and sell them, like its Smith Barney Brokerage unit, but the company says it doesn't want to do that. Now, the question is can it stick to that or is a federal regulator is going to come in and, you know, sort of force the company to do some kind of sale which is what they did with Bear Stearns and Washington Mutual.
BLOCK: If the clock is ticking for Citigroup, how much time does the company have?
ZARROLI: It doesn't have a lot, I mean once a company share price falls as low as Citigroups' has fallen, a lot investors just start to look at it much more skeptically, they just sort of get really nervous about it, and of course if enough of them do that it just makes - it adds to the downward pressure on the stock, it makes the shares go down. So, Citigroup really has to decide what it wants to do and it has to decide that pretty quickly. It doesn't have a lot of time. You're seeing that everyday investors are bidding the share price down and the company really has to kind of go back to the drawing board and decide what it wants to do.
BLOCK: OK. NPR's Jim Zarroli in New York. Jim, thanks very much.
ZARROLI: You're welcome.