With more than $2 trillion in total assets, Citigroup is one of the largest and most global banks in the world. It has more than 200 million customers in more than 100 countries and offers a vast array of financial services. While Citigroup has been a highly profitable and successful bank, in 2008 massive losses on securities related to home loans and other asset-backed securities caused negative profits and damage to its capital that threatened the banks solvency. The U.S. government injected more than $40 billion of new capital in an effort to prevent the banks failure. The government also provided guarantees on more than $300 billion of risky loans made by Citicorp.
Questions to answer:
1. What are some arguments in favor of continuing government support of Citigroup? Discuss who would be hurt by the banks failure. Is the failure of Citigroup different from that of other firms? Does the government have people to manage such a global finance enterprise?
2. What are the counterarguments in favor of letting the bank fail? Discuss the concepts of free markets and capitalism that create competition and allow unsuccessful firms to fail. Does bailing out large banks cause them to take excessive risks on the theory that they are too big to fail?
CHAPTER QUESTIONS 363 MI INI CA SE: CITIGROUP IN DISTRESS: ONE OF THE WORLD S LARGEST BANKS STRUGGLES TO SURVIVE With more than $2 trillion in total assets, Citigroup is share. One of the mightiest banks in the world had be one of the largest and most global money center banks come a penny stock! in the world. It has more than 200 million customer By 2015 the bank had repaid $45 billion in bailout in more than 100 countries. Some of its brand name funds and was on the mend. Nonetheless, a controversy components include Citibank, CitiFinancial, Primerica surrounds the issue of government bailouts of global Smith Barney, Banamex, and Nikko. It offers a vast array money center banks. Some experts contend that the best of financial services, including basic payments services strategy is to let large global banks fail, have the govern credit cards, loans and mortgages to consumers and ment temporarily take them over (i.e., a bridge bank businesses, securities services, derivatives risk manage solution), remove bad assets from their balance sheet ment services, treasury and cash management services put them into a separate government-run entity, and di and more. While Citigroup historically has been a highly ide the bank up and merge out the pieces with solvent profitable and successful money center bank, in 2008 banks. Others argue that letting big global banks fail is its fortunes turned for the worse. Massive losses on se not an option, as such an event would trigger panic in curities related to home loans (i.e., mortgage-backed world financial markets and damage the world economy. securities and collateralized debt obligations) and other QUESTIONS: asset-backed securities caused negative profits and dam 1) What are some arguments in favor of continuing age to its capital that threatened the bank's solvency. The government support of Citigroup? Discuss who U.S. government injected more than $40 billion of new would be hurt by the bank's failure. Is the failure of capital by buying preferred stock from the bank in an Citigroup different from that of other firms? Does effort to prevent a catastrophic large bank failure that the government have people to manage such a could damage the United States and global economy global financial enterprise? The government also provided guarantees on more than $300 billion of risky loans made by Citicorp. Under 2) hat are counter arguments in favor of letting the terms of the bailout, the bank was not allowed to the bank fail? Discuss concepts of free markets pay more than $0.10 per share in quarterly dividends and capitalism that create competition and allow to common shareholders for three years without go unsuccessful firms to fail. Does bailing out large ernment approval. In March 2008, its shares sold for as global banks cause them to take excessive risks on high as $55, but by March 2009 had fallen below $1 per the theory that they are "too big to fail
