Is this first of many “leakage”? WSJ is reporting that as much as $10 billion might be needed by Citi to improve its capital standing. At the best case scenario, it would have $500 million to serve as cushion to its losses.
The bank, like many others, is negotiating with the Federal Reserve and may need less if regulators accept the bank’s arguments about its financial health, these people said. In a best-case scenario, Citigroup could wind up having a roughly $500 million cushion above what the government is requiring.
This line from the report made me raise an eyebrow:
The Obama administration is expected soon to outline what type of investor it will be in companies where it has a stake, according to people familiar with the matter. The Treasury is discussing applying different levels of governance depending on the size of the U.S. government’s stake.
The line following that said the government aimed to minimized its intervention in the operations, but it still worries me about the kind of “minimal” intervention they will perform.
I’m wondering if this is the government’s way of minimizing the damage that is expected to happen come Thursday when they release the results of the stress tests. The leaks that have been coming out seem to be “helping” the stocks of the banks of concern price in the bad news. With news coming out that BofA and Citi would need additional funding, it would probably no longer come as a surprise that these two would be considered “failures” of the stress test. Now that this news about Citi has been leaked, reaction on Thursday might no longer be bad as expected.
I am probably just overthinking, but it probably would no longer be so bad if this is indeed the government’s strategy. It might even work if they leak information over the weekend or days preceding the revelation of the stress test result, only to rebut them later on by declaring a “less-than-reported” needed funding.