Citigroup Nationalization: Talks Of 40% Gov Stake Causes Stock Rally

TIM PARADIS | February 23, 2009 08:41 AM EST |

NEW YORK — Investors showed relief early Monday following a report that Citigroup Inc. is in talks for the U.S. government to boost its stake in the bank.

Overseas markets rose on the report, and U.S. stock futures pointed to a higher open.

Stocks tumbled last week as investors worried that the government would be forced to funnel more money to Citigroup and Bank of America Corp. and, in the process, completely wipe out shareholders. The Wall Street Journal reported late Sunday that Citi is negotiating to increase the U.S. government's stake to as much as 40 percent. The government, which has already invested $25 billion in the company, would convert its preferred shares to common shares; this would leave existing shareholders with some stake, albeit one that is diluted, the Journal reported.

Investors have been anticipating that the overall number of shares would increase and therefore reduce the value of each share. But investors also seemed to welcome the report because it lessened uncertainty about the company.

"People don't want to see the banks nationalized but they know something has to be done for Citi," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams in New York. "A lot of people were scared of full-fledged nationalization."

"People are thinking at least maybe we know what they're doing now," he said.

Dow Jones industrial average futures rose 58, or 0.79 percent, to 7,410. Standard & Poor's 500 index futures rose 9.10, or 1.16 percent, to 778.40, while Nasdaq 100 index futures rose 8.25, or 0.70 percent, to 1,180.00.

Overseas, Britain's FTSE 100 rose 0.42 percent, Germany's DAX index rose 1.20 percent, and France's CAC-40 rose 0.95 percent. Japan's Nikkei stock average fell 0.54 percent.

Bond prices fell as demand for the safety of government debt eased. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.85 percent from 2.79 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.30 percent from 0.26 percent Friday.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude rose 19 cents to $40.22 per barrel in premarket trading on the New York Mercantile Exchange.

Shares of Citigroup Inc. rose 7.7 percent in electronic trading. The stock ended Friday at $1.95.

Bank of America shares rose 10.8 percent after closing Friday at $3.79.

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Nasdaq Stock Market: http://www.nasdaq.com

Warlock

You think this is a reason for the market to rally?

Warlock

slimboyfat

Not exactly a rally - the Dow lost 3.4% today, now at its lowest point for over ten years I think.

The markets have not crashed in the past couple of weeks like I expected, but they have not exactly performed well either. We may yet see a crash, or perhaps just a continuation of the long gradual decline.

SacrificialLoon

Oops.

slimboyfat

http://news.bbc.co.uk/1/hi/business/7906899.stm

US shares at nearly 12-year low

The Dow Jones is at its lowest since 28 October 1997

US shares have fallen sharply on concerns about the government's latest attempts to shore up the banks.

The Dow Jones Industrial Average closed down 250.9 points, or 3.41%, at 7,114.8, its lowest since October 1997.

But shares in the banks themselves rose sharply, with Citigroup up nearly 10% and Bank of America rising over 3%.

The US government reiterated its determination to keep banks operating, but added it wanted the banks themselves to stay in private hands.

There had earlier been reports that the government was planning to take a bigger stake in Citigroup and could even nationalise it.

"People left and right are throwing in the towel," said Keith Springer from Capital Financial Advisory Services.

"The biggest thing I see here is the incredible pessimism - the government is doing a lousy job of alleviating fears."

Technology shares also fell on reports that a reorganisation is planned at Yahoo.

The technology-based Nasdaq index fell 53.5 points, or 3.71%, to close at 1,387.7.

The falls pick up from a tough week last week, when all the major indices fell by more than 6%.

Earlier in the day, the FTSE 100 in London closed down 1%, the Cac 40 in Paris fell 0.8% and the Dax in Frankfurt fell 2% to close below 4,000 points for the first time since 2004.

sammielee24

I don't get bothered at all any more about the market. It will do what it will do and right now, I don't expect it to do much of anything for some time. It doesn't matter at this point if it rallies around the banking rumor or not - sooner or later it will most likely hit 5,000 but the reality for those unemployed isn't watching the market go up and down, it's just trying to stay afloat. Like the 90% polled, I have zero trust in the business of Wall Street and it's fantasy funds at the moment so I ignore it. sammieswife.

The Dow JonesIndustrial Average is simply the average value of 30 large, industrial stocks. Big companies like General Motors, Goodyear, IBM and Exxon are the kinds of companies that make up this index. See Dow Jones & Company for details on how the average is calculated. See The Investment FAQ for a list of the companies in the average. The thing to understand is that the Dow Jones Industrial Average is nothing magic -- someone has chosen 30 companies and averaged their values together by following a specific formula. That's all it is.

There are all sorts of averages out there. The S&P 500 is the average value of 500 different large companies. The Russel 2000 tracks the average of 2,000 smaller companies. And there are others.

What these averages tell you is the general health of stock prices as a whole. If the economy is "doing well," then the prices of stocks as a group tend to rise. If it is "doing poorly," prices as a group tend to

Citigroup Nationalization: Talks Of 40% Gov Stake Causes Stock Rally

hamilcarr