Citigroup - Brink of failure

Just when we thought we were out of the woods, the bear comes snarling along with a prospect of failure that threatens to shake the whole system to its roots.

Last week, with the all attention being focused on the Big 3 Detroit auto manufacturers, another major drama was playing itself out. Citigroup - one of the worlds' largest banking institutions was fighting for its life - its failure would rock the global banking sector to its core.

I took this excerpt from an article from Martin Weiss to highlight the issue:

Citigroup, the nation’s second largest banking conglomerate, is on the brink of failure.

Its stock price collapse is the canary in the coal mine, wiping out over nine-tenths of the company’s market cap since its 2007 peak, decimating two-thirds of its value just last week alone.

At the same time, the collapse in its market cap is also the bank’s nail in the coffin, making it virtually impossible for it to raise the capital it desperately needs to save itself.

If it fails, it will be, by far, the largest banking disaster in history, involving $2 trillion in assets. That makes it approximately six times larger than Washington Mutual and three times bigger than Wachovia.

Moreover, the prospect of a failure by Citigroup poses far greater challenges to regulators than a typical large bank. Due to its massive derivatives holdings — side bets on interest rates, currencies, and the probability of defaults by other large corporations — it could be extremely difficult to save Citigroup without serious disruptions, raising serious questions about the global banking system and the world economy.

Read the complete article here...

http://www.moneyandmarkets.com/citigroup-failure-imminent-6-28244

The market commentators have come out with that usual line - 'Citi is too big to fail...'

But lets remember that Citi has already announced it is shedding 52000 jobs - sounds like at least something of a failure of circumstances to me... That's a massive figure and when 52000 people come into the unemployment queue or line up outside a soup kitchen, THEN the reality will start to bite.

Forget the auto manufacturers - their 'failure' in one form or another is almost guaranteed - failure of Citi will provide another serious shock to the markets.

I said it on Saturday - don't buy the US rally because there are more shocks in store in the short term....