Over at Goldman Sachs the firm's research opinion on Citigroup (NYSE: C) took a sharp turn for the worse. According to Reuters, the brokerage said Citi "may incur second-quarter write-downs of $9 billion and raise additional capital."
If a new infusion of money into Citi looks anything like the one Barclays (NYSE: BCS) just completed, an capital raise of $10 billion could dilute current shareholders by another 10%. That could drop the US bank's stock below its 52-week low and might take shares under $15.
The news about Citi says more about the future than it does about the past. If Citi thinks that it needs significant capital going forward, it clearly believes that the credit crisis has another quarter or two to go.
Several bank CEOs said in April that the credit crisis was easing. It now appears that they were wrong. Rising mortgage default rates, problems in the credit card industry, and falling LBO loan values have made sure of that.
A sustained problem in the financial markets could deepen a recession. Banks raise money, but they do not take the risk of lending it to consumers and many business. Cash starvation makes its way down the food chain. The lending markets disappear as money center banks try to save their skins.
Citi raising money is not just Citi raising money. It is more ominous than that.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
6-26-2008 @ 5:35AM
B. Harrison said...
And the progressive gradual relaease (revelation) of substantial financial losses continues on . . . . and more is sure to be revealed during the next year.
Weren't all of these "financial experts" (CEOs, CFOs, etc.) being paid MILLIONS of dollars to "be on top of all of this" and to manage the corpoorations? Personally, I consider these revelations to be "planned progressive disclosures" in attempts to minimize the impact of these losses. If these corporations had been required to reveal all of these losses up front, these corporations would have been either forced into bankruptcy or had their stock values drop to almost nothing.
Let's face the reality of these "planned, progressive revelations" . . . . and there is still a lot more to come during the next year.
George Bush should be IMPEACHED; and most Congressmen voted out of office for allowing this debacle to occur. .