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.
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.