How much of Citigroup could the FDIC actually take over?

"I don't get why we all (I'm including myself in this) thought it was okay to allow the creation and growth of gigantic financial companies for which we had absolutely no plan for winding down in case of trouble."

Because the lesson that unregulated and under-regulated financial institutions will burn you every time is one that every third generation has to learn for itself.

The deposits that the FDIC has some responsibility for (up to $250,000 per depositor) add up to $241 billion.
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actually, the amount that the FDIC has responsibility for is probably less than $241B, because deposits over $250k are not insured.
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it should also be noted that deposits have the first priority when it comes to payouts of debtors -- in other words, the FDIC would be on the hook for far less than $241B--especially since total Citibank assets are 1.227 trillion.
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my guess is that virtually all deposits would be redeemed if there was a takeover of citibank -- but stockholders and those who lent Citibank the cash to become so massive would be screwed...
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Given that depositors would be made whole, and the FDIC is responsible to those depositors, Bair really ought to bite the bullet and takeover whatever she can...

here's a suggestion -- have the FDIC declare that because it lacks the authority to take over citigroup, that its deposits will no longer be insured. That will be that there will be a run on citibank, it will fold, and the bankruptcy courts can deal with the whole mess.

Dealing with Citi is enormously complicated because more than 20 governments must be included. There is tremendous value locked up in its international banking operations that's worth far more the $5bn market capitalization the firm has today. The bank is well capitalized in most jurisdictions in which it does business, as required by law. It's very likely Citigroup's fate will be decided at G20. I am all but certain that it won't be around in its current form by the end of 2009.

Pluk:
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Are you suggesting as a measure to prevent 'tobigtafailitis' is once a bank reaches a certain size, it loses it's FDIC protections?
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I don't like this on first glance, mostly because I see it as encouragement to play a shell game with accounts and assets, passing them back and forth between corporate entities to stay within the limits, but perhaps I'm just paranoid.
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Is this a new idea, or has a similar policy been tried before?
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-MBirchmeier

I think it's important to see what Citi's plan actually amounts to:

http://www.reuters.com/article/mnaNewsIndustryMaterialsAndUtilities/idUSN1248357020090112?sp=true

" Citigroup Inc (C.N) may explore further asset sales after divesting its Smith Barney retail brokerage unit to Morgan Stanley (MS.N), but the banking giant is likely to have a tough time finding buyers.

Chief Executive Vikram Pandit is trying to shed hundreds of billions of dollars of assets and reduce risk after Citigroup suffered $20.3 billion of losses in the year ended Sept. 30. The bank is expected to post another loss for the 2008 fourth quarter when it reports results this month.

Citigroup has considered selling its Banamex Mexican banking unit and Primerica Financial Services, people close to the matter have said. The Wall Street Journal reported on Monday that CitiFinancial, international retail-brokerage operations and the private-label credit-card businesses may also be put on the block. The bank declined to comment."

So, there plan is to sell many of their assets going forward. They need to do this. More here:

http://www.reuters.com/article/newsOne/idUSTRE52510120090306?sp=true

"TOKYO (Reuters) - Citigroup plans to sell its 26 percent stake in Japanese online broker Monex Group Inc as part of the struggling U.S. bank's efforts to raise cash, the Yomiuri newspaper reported on Friday.

Shares in Monex, Japan's second-largest online brokerage in terms of customer accounts, fell 8 percent on the report, cutting the value of Citigroup's stake to 14.1 billion yen ($144 million).

Citigroup, which has received $45 billion of U.S. taxpayer funded capital injections since October, appears to have already sounded out several financial institutions on the Monex stake, the Yomiuri reported.

Yoshito Shimoyama, a spokesman at Nikko Citi Holdings Inc, Citigroup's holding company in Japan, declined to comment.

Citigroup is also trying to sell Nikko Cordial, a bricks-and-mortar retail broker with 109 branches across Japan."

One big problem is that Citi does not want to sell Banamex, its crown jewel. In fact, you could say that we're funding Citi so that it can keep control of Banamex. We're funding Citi so that they don't have to have a fire sale of their assets. Here, from Inca Cola, are a couple of other problems:

"So here's the question that's been itching at me all weekend: Do Citigroup's intentions regarding Banamex signal that the US Gov't is only (or majority) buying into Citi Holdings, the toxic end of C? "
"However, if in all likelihood it's not true and the US gov't is getting 36% of the whole shebang, Citigroup is undoubtedly breaking Mexican law by holding onto ownership of Banamex. So either Mexico changes the law to suit present circumstances (possible, though it will be an absolute political field day for Calderon's opposition) or Banamex will have to be sold to a third party, something that Pandit clearly doesn't want to happen."

These are problems with selling the assets. Even Banamex might be worth only $15 Billion Dollars, which makes me think that this whole thing is a farce.

Then there's this from Zero Hedge:

"Citigroup's 10-K filing makes it clear why regulators appear committed to (or perhaps are stuck with) a strategy of supporting the full capital structure (including holding company debt), rather than subjecting the bank to the Lehman treatment. Citigroup has a daunting $1.9 trillion of assets on the balance sheet alone (not counting off-balance sheet exposure). The balance sheet is essentially supported by an uneasy alliance between the U.S. government and the company's depositors and other creditors, since the market value of the equity is so depressed. Deposits totaled $774 billion at year end, including nearly $500 billion outside the U.S. In a liquidation of a U.S. insured depositary institution, the 10-K notes that U.S. deposits would have priority over deposits outside the U.S., as well as over parent company claims. But we can't imagine the new administration will want to precipitate an international crisis over whose-deposits-get-paid-off-first."

In other words, foreign investors, like China, are claiming that they were also implicitly guaranteed by the US government. This problem seems to be separate from the assets problem.

Bottom line: an awful mess. The real question is whether or not leaving Citi in charge will make this all worse, by holding on to failing assets or accepting large losses in order to keep Banamex, etc.

What's clear to me is that Citi could, in fact, make things worse going forward. Yikes.

Are you suggesting as a measure to prevent 'tobigtafailitis' is once a bank reaches a certain size, it loses it's FDIC protections?
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what I'm suggesting isn't a question of size, but of "complexity". Bair is saying that because Citigroup is an international conglomerate of which Citibank is merely a part, the FDIC is unable to take over Citibank or Citigroup. (A far smaller international conglomerate would face the same problems.)
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If that is the case, then it seems to me that the conditions under which a bank is eligible for FDIC deposit insurance aren't being met, because "being taken over if the bank fails" is a necessary element of FDIC insurance. The lack of a statutory/regulatory framework through which a takeover of a bank that is part of an international conglomerate should mean that the insurance is not valid, because that insurance only comes into play once the FDIC takes over the bank -- the FDIC doesn't, and isn't supposed to, wait for a bank to file for bankruptcy protection.

Ok... I think I'm understanding now. I think the daylight savings switch jet lagged my brain.
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-MBirchmeier

You write:

I don't get why we all (I'm including myself in this) thought it was okay to allow the creation and growth of gigantic financial companies for which we had absolutely no plan for winding down in case of trouble.

Here's a dumb question: how do we know that "Citibank" chopped into 10 smaller bits would have been any easier of a situation? If managers at different banks are basically making similar mistakes (and that's what happened here) then you just wind up with a lot of small banks that need bailouts, no? And the total bailout money needed still exceeds the capacity of the feds to supply. What am I missing?