Is it time to nationalize Citibank?

Not that anyone has been listening to the small fry (see prior post “Put Citigroup out of its misery” June 26-08), and rightly so, but the recently released Global Finance Magzine rankings of the world’s safest banks is out, and the #1 choice says it all:

kfW in Germany took the honours, and they’ve been owned by the German government since inception in 1948. Now I’m not advocating a complete change in the private sector nature of finance and capital, but Citibank (C:NYSE) is a unique case, and it’s balance sheet is just too big to fix.

The U.S. government might do it via the backdoor, with an increasing equity stake with each follow-on equity round. But as with AIG, they’ve proven they’ll do what it takes. Unless the U.S. government knows something about the health of Citi’s balance sheet that isn’t implied in the $1 share price, now is the time to step into the breech and nationalize Citibank.

When Goldman boss Blankfein spoke out against the concept (see prior post “Recession to be longest since WWII” March 9-09), is he also saying that “no one is too big to fail”? He didn’t go that far, as he has spoken in favour of government bailouts when there was no alternative. Does GS benefit if Citi continues to be Dead Bank Walking? Perhaps. But I don’t think that is driving his perspective; it’s likely just the classic “a free market is the only market worth living in” mentality.

But these aren’t times to live by a bumper sticker.

Why does saving Citibank a year from now make more sense than doing it today? The drip-drip-drip of the negative headlines and writedowns and so forth will continue to have a huge negative impact on the more healthy names, such as Wells Fargo (WFC:NYSE) and JPMorgan (JPM:NYSE).

It’s as though the powers that be will try leeches before resorting to the ultimate cure-all. Just get it over with. The slow motion train wreck won’t have a chance of ending until you do.

When the world returns to normal (at least a “new normal”), Citibank should be fixed and there might even be a willing IPO market. The U.S. Fed could be the new King of Private Equity at that point and just take Citi public again.

General Patton wouldn’t use incrementalism to win a battle, and this challenge certainly stacks up against the Battle of the Bulge. This time, however, it is the Germans who have the staying power, whether they be state-owned or publicly-held.

MRM
(disclosure – I own GS)