Look Out Below – Giant Citi Collapsing Fast

Citibank is (or at least until recently was) the largest bank in the world. Its parent – Citigroup – was the largest financial services companies in the world.

But as the Globe and Mail writes:

[Citigroup] announced plans yesterday to cut 50,000 jobs.***

The pace of Citigroup’s decline has been breathtaking. Only last spring, it was the largest bank in the world, worth more than $250-billion (U.S.).

Today, its market value has withered to just $50-billion, making it roughly the same size as Royal Bank of Canada.

Much of that drop can be attributed to questionable lending and an overreliance on derivatives, two key ingredients in a credit crisis that has hammered pretty much every large U.S. bank.

But Citigroup now looks more vulnerable than most, and many observers are pointing to another underlying cause: a flawed business model.

And Citigroup is getting hammered by credit default swaps. As Marketwatch writes:

CDS spreads on Citi were at 325 basis points over Treasury bonds during midday action, up from a 240 basis points yesterday, according to Phoenix Partners Group.

Christopher Whalen, head of Institutional Risk Analytics predicts that “Citi will be controlled by the U.S. government by next year, and that the next logical step will be to break up the bank and sell the assets.”

Is he right?

I don’t know. But the fact that the world’s largest bank and financial services company have collapsed so far so fast shows that the economic crisis is very severe indeed.

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