Many of the nation's largest banks are simply struggling to recover from billions of dollars in losses because of our mortgage crisis. Citigroup is tapping into wealthy foreign investors and Middle Eastern governments for a massive cash infusion. It's in that much trouble but a Dubai government fund manager this week said city Group still needs a lot more cash and may have a lot of trouble finding it. Christine Romans has our report.
Citigroup is an American financial powerhouse and a household name. "…or a city bank account" It's lost billions from bad bets on mortgages fired its CEO and cut its dividends. The fear on Wall Street and in Washington hearing rooms, it's just the beginning. But ensure depositories and other financial institutions could lose an additional 300 to 400 billion dollars due to exposure to mortgages. Big US banks have already written-off some 160 billion dollars in bad investments. The investment arms of some foreign governments have come to the rescue with emergency cash infusions for Morgan Stanley, Merrill Lynch and Bear Stearns. City has raised the most 14.5 billions dollars in January from foreign governments and wealthy investors. In November, it sold a 4.9% stake to the Abudhabi investment authority for 7.5 billion dollars. This week, a Dubai government fund manager said Citigroup would need a lot more and may have trouble getting it. A sentiment reflected on Wall Street, the stock's price cut in half in a year and now trades at its lowest price in ten years. The bank's new CEO Vikram Pandit in a company memo today described what he calls a challenging economic environment but insisted Citi is financially sound, well-capitalized and focused on the strength of our balance sheet. The company does have enough money to meet federal requirements. Banking regulators won't comment on city group's problems. Despite several years of record bank earnings, bank failures are on the rise. The FDIC has 76 institutions on its problem list, 50% more than a year ago, but compares that with more than 1400 on the list in 1991, at the height of the savings & loan scandal.
"There probably will be some bank failures." That was the Fed Chief last week warning some smaller banks will fail, but he doesn't expect quote "serious problems" in the overall banking system.
Now as for Citigroup in whether it needs more money, a source close to the company said city group is not shopping around right now for more sovereign wealth investments essentially, Lou, downplaying those bearish negative comments from Dubai earlier this week.
Host: "Well, they weren't just bearish and negative all right. We can see, no, that, those are down-right scary comments. And citigroup had no public response to?"
Correspondent: Well they had this long memo today from Vikram Pandit who now runs the company who said we are well-capitalized and showing that you know according to FDIC, an regulatory standard they do have enough capital right now but the question is what is to come and is there is there enough to cover what is to come.
Host: And you know the CEO of city group you know, maybe some other can help him in putting forward these things in the history of financial communications to refer to what we are witnessing right now is a challenging financial environment, it's frankly, well it calls in the question, other things he says because this is more than challenging. This is an extraordinarily difficult environment and we are looking at a very significant downturn in this economy. Ah, what are the bank analysts and those who are following the baking sector in this country? What are they saying about Citi?
Correspondent: They are saying that the big concern is we don't t know how much more there is for this big bank. It's what we don't know that is really the concern and that the stock has been cut in half as we said over the past year, Lou, and it doesn't look like investors, at this point, are very optimistic about what's coming up in, in quarters ahead.
Alright, Christine, thank you very much.