Citigroups balance sheet has $774 billion in deposits, $105 billion in short-term borrowings, $393 billion in long-term debt, and $646 billion in other liabilities, including $250 billion to the Fed and $118 billion in brokerage payables. Shareholder owe $27 billion in Citigroups stock. Citigroup has $500 billion owed to non-depositor unsecure creditors
Steps:

1. Reduce debt by selling off assets.
2. Writing down 20 percent of $2.05 trillion dollar assets
3. Firing thousands of employees.
4. Paying more money for premiums on its credit default swaps

Citigroup has identified risk in its emerging markets: Brazil, India, and Mexico. Citigroup has large investments in these emerging markets.

Revenues have declined. As of Feb 2009, Citigroup recorded it fourth straight quarter of losses and $13 billion in writedowns and credit losses. Revenue fell 23 percent to $16.68 billion. Expenses total $14.43 billion, up 2 percent.

http://www.chartingstocks.net/2009/02/gone-in-60-days-citi-and-bank-of-america-wont-live-to-see-may/

GM must fight bankruptcy and Citigroup must not nationalize!

1. A creditor (party A) purchases a bond from GM forming debt contract. GM pays a yield percentage for usage of the money. GM invests the debt to finance R&D and growth. The Creditor (Party A) hedges against the risk of defaults and purchases credit or loan default swaps from Citigroup (the bank, Party B) and makes premium payments to the bank. The creditor (Party a) is transferring risk to the bank and paying premium for the bank to bear the risk. When GM defaults the creditor sells the bond at face value and the bank (Party B) pays the lost difference on the Bond to the creditor (Party A). If GM default the bank (Party B) could pay up to $44 billion in bond loses, as a maximum payout, a gross notional amount. The premium costs for the CDS adjusts to the perceived risk of default and has increased 80 percent. $8 million to insure $10 million of debt for five years. GM must fight bankruptcy.
2. Money is gone from banking and investing. Money is waiting in vaults and creditors waiting to see what will happen with GM.
3. Short selling was banned on financial stocks.
4. Traders use credit-default swaps to bet against many banks and lenders. Traders make investors concerned about the impact swap prices could have on companies. A setup is emerging for the traders profiting on the rapid sell of protection, if a bailout comes and bankruptcy does not.
5. Citigroup has $3tn plus in credit default swaps. Citigroup has received $45 billion in TARP funds. The funds try to prop up Citigroup swaps and help solve their GM default.
6. GM must fighting bankruptcy to prevent payouts of the CDS market. GM wants to exchange stock to get the company’s debt dropped from $63 billion to $30 billion. Unsecured creditors would take notes worth 30 cents on the dollar and GM stock. Current unsecured creditors hold $31.5 billion of $63 billion in debt. Reducing debt helps free up capital for operations.

Citigroup TCE=1.87 percent but investor would like above 3 percent

1. Investor wants a Tangible Common Equity TCE above 3% for Citigroup. Citigroup TCE percent is 1.87 percent with a Tier 1 of 11.8 percent. The goal is to boost Citigroup equity and less desperate need for a takeover.
2. TARP injections were converted into $45 billion preferred shares. The government is being asked to convert the preferred shares to common shares, providing equity for Citigroup. By converting $45 billion of government owned preferred shares to common stock, it would increase TCE to 2.6 percent and give the government 40 percent ownership of the company. Citigroup wants to keep ownership below 50 percent and prevent nationalization. To get to a TCE of 4%, Citigroup would need to sell the government another $40 billion in preferred stock giving the government a 79 percent ownership.
3. There will be conversion price to convert preferred stock to common stock. Currently, there is $10 billion in common stock. If the preferred stock converts from $45 billion and common stock totals $65 then it means a $10 billion conversion price. The conversion price would be far above the current trading price.
4. Citigroup is encouraged by the government to find private sources of equity. They have been desperate to find the investor.
5. US banks are $1 trillion under capitalized. Bank standards for equity were not strong enough for the risks they took.