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Citigroup Gets Treasury “Seal of Approval”
Citigroup (NYSE: C) just announced the Federal government is bailing it out – again. This time the U.S. Treasury will guarantee almost $300 billion in troubled assets, and provide another $20 billion in fresh capital.
Citigroup isn’t the first bank to accept government funds. It joins Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC) and J P Morgan Chase (NYSE: JPM), which have all received $25 billion. And the list doesn’t stop there. Dozens of smaller and regional banks have accepted bailout money.
But Citigroup is the first bank to get additional funds and loan guarantees.
The interesting thing is what the bailouts don’t spell out for taxpayers. These cash infusions don’t come with fine print that reads: “We, the Federal government, will not let you fail.” But they might as well. And perhaps, it’s better if they don’t.
Investors in these companies have the advantage of equity returns with government backing. It’s like buying treasuries and receiving corporate-bond rates of return. Which brings us to another point.
The biggest winners of the Treasury “seal of approval” aren’t just the stockholders. It’s the bondholders. Investors who have banking bonds at above-market returns are smiling at treasury-like safety. It could be why treasuries have fallen. Banking debt should look very appealing to bond buyers right now.
Companies mentioned in this article: C, BAC, WFC and JPM.
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