According to four people who are familiar with the matter, Citigroup Inc is in talks with US regulators to work out a plan on limiting potential losses to the tune of $100 billion in toxic assets. Following the plunging of stocks last week, there are concerns regarding the fate of the company.
Confidential negotiations are underway throughout the weekend between the Citigroup, the Treasury Department, Federal Reserve and other regulators and a decision is expected to be taken very soon according to sources who did not want to be identified for obvious reasons.
A plan was being worked out wherein the assets would still remain with Citigroup and the government will absorb losses which go beyond a certain specified amount according to sources.
There is a pile of $400 billion mortgage bonds, corporate loans and auto loans, a portion of which may possibly be the holdings that are guaranteed. Discussion focuses mainly on the assets amounting to about $100 to $200 billion apart from the amount to be covered under the plan.
According to Brian Barish, Cambiar Investments LLC president in Denvar, there is no need for the government to be in on this to make money. Even if they lose money, it will be worth it if they can save the system as citi is too big to fail due to the point of view of the financial system.
Last week saw the stock prices of Citigroup plunging after investors lost confidence due to four consecutive posting of quarterly losses. Urgent measures have to be taken therefore to restore customer and investor confidence in America’s second largest bank.
