Monday, August 24, 2009

U.S. Makes Money from Citi Bailout

. Monday, August 24, 2009

$11bn profit, as of today:

The US government, by contrast, is sitting on a paper profit of almost $11bn on its 34 per cent shareholding in Citigroup, its only direct stake in a large financial institution.

The US authorities received more than 7bn shares in the troubled financial group at $3.25 apiece, after converting $25bn of preferred stock into common equity at the end of last month.

Since then, Citi’s shares have rallied, and closed on Friday at $4.70, increasing the value of the government’s stake by $11bn. That more than offsets the paper losses of all the other significant state interventions in listed banks – in the UK, Germany, the Benelux and France.

At least one IPE@UNC blogger (not this one) has also made a tidy profit from buying low on Citi. We made another half billion when Goldman bought back its preferred shares from the Treasury in June. So this goes to show what a lot of people were saying (including me, I think, but I can't find the post now): the "bailout" was never a handout, since the loans were to be repaid and/or the government got a preferred equity stake. It is very possible that TARP will end up turning a profit overall. At the very least, the final cost won't be anything close to $700bn. Saving the world from Armageddon and turning a profit on the side? Not a bad bit of business, if it ends up that way.

Via Derek Thompson, who adds:

Our bank strategy might not have much of a through-line (Let Lehman fail, then guarantee AIG for more than $100[bn], start doling out TARP to struggling banks, propose and un-propose and re-propose public-private plan to buy toxic assets, and so on) but it appears to be working, insofar as our banks are much better capitalized now than they were seven months ago. When the dust settles, economic historians (and really, anybody with an opinion) will be able to look back and assess the varying health among our financial institutions to conclude whether our ad hoc approach was instinctive but sound, or messy and fundamentally harmful, but to me, this article is another piece of information to file under: Things Really Could Have Been So Much Worse.

Yes. Very much worse. Which is why articles like the one Matt Taibbi wrote for Rolling Stone (no link; it's that bad) are so irresponsible: they completely missed the cause, the effect, and the consequence.


U.S. Makes Money from Citi Bailout




Add to Technorati Favorites