The biggest question running around Wall St. is how much more cash is going to have to go into the sink hole of banks, brokerages, and insurance companies. The estimates for further subprime write-downs run into the tens of billions of dollars. The big wave of consumer credit card defaults is only starting to hit now. There are derivatives built around these pools of debt as well.

There is no guarantee that muni-bond insurers will make it. According to the FT, Ambac (ABK) will not break into two pieces and put its troubled structured investment operation into a new shell. That puts paper held by big banks and institutions at risk. Ambac and MBIA (MBI) could still be hit by the need to pay-off insurance on structured investments they have insured and their "Aaa" ratings could get whacked.

LBO debt is being written down. Much of its is considered too leveraged and can’t be pawned off to pension funds and hedging operators. Auditors will be crawling all over those obligations.

A no lesser figure than the head of Dubai International Capital says Citigroup (C) is not out of the woods. He told Reuters it would take "a lot more money" to rescue Citigroup Inc following investments from Abu Dhabi, Kuwait and Saudi Arabia’s Prince Alwaleed. With $13 billion in his pocket he has probably had a look at the balance sheet of every large US financial institution that has raised capital or may need to.

When Citi sold $7.5 billion of stock to Abu Dhabi Investment Authority the Telegraph wrote that an analysts at CIBC World Markets called the move “desperate”. That may be, but it was necessary.

With Citi’s exposure to most of the dangerous paper floating around the markets, the idea that it may have to raise another $7 billion after reporting its Q1 is certainly not out of the question.

What is open is whose ox will be gored. The bank’s market cap is down to $120 billion. An investment that involves warrant coverage at some reasonable strike price could dilute current shareholders by 10%. If Citi is in real trouble and its stock is falling fast, that number could move to 15% or even 20%.

Citi could be a $15 stock by the Spring.The excesses of the market have not been washed out of the system so the price of being a big bank is going to keep going up.

Douglas A. McIntyre

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