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Citigroup Bailout

Nov 24 2008

Citigroup Inc (NYSE: C) landed a big investor over the weekend. This time it wasn’t a sovereign fund or Warren Buffet, it was the US Government. The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp all came together to purchase $306 billion in bad assets from the bank in addition to providing $20 billion in liquidity. The company may still need to take on $29 billion in losses due to this transfer.

Uncle Sam Gets Warrants

The government in exchange for taking on the bad funds will receive warrants to purchase shares in the company. Luckily for the US government, the share price of Citigroup went up 50% today. It would be a good time to sell those shares but the government will be holding them for years and hoping the stock rebounds to pre-credit crisis highs.

 

The full market rebounded on the news of the Citigroup bailout with the Standard & Poor’s 500 (S&P) racing 5% high in mid-morning. President-elect Barack Obama also was in the news calming Wall Street with the unveiling of his top economic team for his administration.

The Trade

            Further dilution and more losses is not a recipe for a stock rally but I would look for a top formation over a 5 day period and then take a small position if you are looking to make money on the stocks future correction.


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