Review: Citigroup's 2008 bailout won't be its last
If history is any guide to the future, Citigroup will be in the middle of whatever financial crisis Wall Street manages to cook up next. Or so say James Freeman and Vern McKinley in “Borrowed Time: Two Centuries of Booms, Busts, and Bailouts at Citi,” a new book examining the $180 billion bank’s troubled past. The institution bailed out in 2008 has suffered repeated failures of over-aggression and lack of foresight, while Uncle Sam’s open wallet has blocked meaningful reform.
In its early days, Citi was a politically connected bank with poor lending practices controlled by a management team with alcohol problems. The bank came close to failure in the Panic of 1837, but was bailed out by John Jacob Astor, the beaver-pelt mogul who installed a capable top executive. For the next 72 years, Citi was capably run and grew to be the nation’s largest bank, albeit with only one branch, taking on deposits in “panics” because of its perceived solidity.
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Having suffered two near-death experiences in a decade, Citi was at least conservative for a generation. The next bailout came courtesy of Walter “countries don’t go bust” Wriston in 1982, when Citi, heavily over-leveraged, lost well over 100 percent of its capital in loans to Mexico, Brazil and Argentina. This time, the regulators’ response was to provide liquidity and pretend the loans were solid, which worked until the end of the decade, when the Latin American bad loans were joined by dud real-estate loans (including a heavy exposure to developer Donald Trump). Citi was described as “technically insolvent” by the House Commerce Committee chairman in 1991 but was privately rescued by an injection of preferred stock from Saudi Prince Alwaleed bin Talal.
link:
https://www.reuters.com/article/us-citigroup-bailout-breakingviews/breakingviews-review-citigroups-2008-bailout-wont-be-its-last-idUSKCN1L91W8
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