Good Bank, Bad Bank: Citi & Uncle Sam (C)

The speculation has been brewing all week (longer actually, but let’s move on) where Citigroup, Inc. (NYSE: C) was going.  Many believed an ‘AIG-esque’ package was coming, and many believed a quasi-filing protection was next.  The "run on the bank" fear has gone too deep now to be stopped without any protections, guarantees, and assurances from the government.  That’s why we asked this weekend, "what happens to Citi on Monday morning?"  Then late today came an interesting thought and an interesting scenario.

Now, comes a report out of the WSJ showing that Citi is nearing anagreement with government officials to create a structure to house someof Citi’s risky assets.  Keep in mind that the WSJ noted,"…discussions remains fluid and might not result in an agreement…"and also noted "The bad bank also might absorb assets from Citigroup’soff-balance-sheet entities, which hold $1.23 trillion."

Here is the serious issue at hand: Citi is now in the TOO BIG TO FAILclub, or so we have been told over and over and over.

Uncle Sam ordained it as one of the TARP-mandated survivors.That doesn’t mean Citi stockholders will be allowed to get rich and itdoesn’t mean that the bailout will be top to bottom.

There is also the chance that on Monday morning all of the speculations of this last week won’t carry over too far.

To be continued…..

• Will it merge with Goldman Sachs or Morgan Stanley?

Jon C. Ogg
November 23, 2008