As the US government agrees to bail out Citigroup by guaranteeing $306bn of toxic assets and injecting $20bn into the bank, stock markets welcomed the news: Citi's stock price surged over 50% today after sinking 60% last week. According to some analysts, this is a demonstration of how investors are still not feeling confident - the days of capital injections are still not over.
Citi was deemed to be too significant to fail, which has raised questions of which banks qualify for this description. According to Mr. Crittenden, Citi's CFO, the package provided by the Fed would not be exclusive to Citi, but could be tailored for other large institutions. Lehman was seen as an expendable bank, but the comments from Mr. Crittenden were seen as an indicator of further possible rescues from the US government.
Another interesting development on the Citi deal was the lack of management purging, unlike the bail-out of AIG where executives heads rolled. As the US government declined to comment the lack of heads on a plate, more questions were raised on how different the conditions of the bail-out seem to be. Even though the capital injection may not be enough, the TARP programme is seeming more and more like a burden to the US taxpayer.
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