Citigroup Can Handle Future Losses Without Govt Help -CEO
By Daniel at 25 November, 2008, 11:03 pm
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NEW YORK (Dow Jones)–Citigroup (C) survived last week’s stock plunge with its
earnings power intact and, with the governments move last weekend to boost the
giant banks capital levels and insure billions of dollars in assets, is able to
absorb future losses without further help, Chief Executive Vikram Pandit said
Tuesday in an interview with Charlie Rose.
The intervention over the weekend was the second attempt by the government to
shore up Citigroups balance sheet. It involved a capital injection of $20 billion
and an agreement to insure more than $300 billion in assets against the bulk of
any future losses. It followed an earlier move to inject $25 billion into the
bank, part of a broad effort to recapitalize the country’s biggest financial
institutions.
“That, in our view, more than covers issues that might come up against the assets
that we own and the loans that we’ve made going forward,” Pandit said in a
transcript of the interview, which was slated for broadcast Tuesday evening on
PBS. “So we’re extremely confident in both the earnings capacity of the company
and our ability to manage.”
Despite having been forced to seek government help a second time, Pandit, in his
first interview since the weekend rescue, conceded little. He said last week’s
stress on Citigroup wasn’t simply an indictment of the bank, but a crisis of
confidence in the U.S. financial system as a whole; that the immense collapse in
real estate markets couldn’t really have been foreseen by risk managers; that
Citigroup’s franchise is unimpaired and that there was no flight of deposits last
week; that Citigroup isn’t too big to be managed, and that it wouldn’t
necessarily have been wise to require a change at the top as the price of federal
help.
“If you start throwing everybody under the bus, we’re going to need a very large
bus,” he said. “Given what we have gone through, the most important thing is who
can do the job going forward.”
Pandit praised the plan announced Tuesday by the Federal Reserve and the Treasury
Department to buy up to $600 million in debt issued or guaranteed by entities
like Fannie Mae (FNM) and Freddie Mac (FRE) - as well as a related move to lend
money to buyers of debt backed by student, auto, credit-card and small business
loans - but said the government needs to do more to address the housing crisis
and help get piles of loans off banks balance sheets.
“There is no doubt that a lot of banks have come into this market with assets and
securities that they wish they hadn’t had,” he said. “Some of them are toxic,
some of them are good. There is just too many of them. And there has to be a plan
to clean out these assets and have institutions and or funds buy them, and the
Treasury has been working on them.”
The government, he said, is the only entity capable of insuring banks assets
against default.
“When your risks are that large, you can’t go to Aetna,” he said. “You have to go
to the U.S. government.”
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