- The Washington Times - Sunday, November 23, 2008

Citigroup Inc., began talks with the U.S. government as the bank’s stock-market value dropped dramatically in three days, according to investors and analysts.

Reuters reports that the bank has met with officials from the Federal Reserve and the U.S. Treasury Department in recent days to discuss its options, which include an endorsement from the government and another capital injection from the Treasury, a person familiar with the matter said. The person requested anonymity because he is not authorized to speak to the press.

Citigroup’s $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the U.S. government this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September, according to Bloomberg News.

One option is for the Federal Reserve and U.S. Treasury to create a special vehicle to purchase bad assets from Citi. The Fed has already erected several such funds, such as the Commercial Paper Funding Facility, to provide liquidity to the financial system. Typically, the Treasury would provide some first-loss equity or insurance fee, such as $50 billion provided to the CPFF, to protect the central bank and give the fiscal authority a stake.

The bank’s management has also internally discussed selling off units or finding another bank to merge with. But it is not clear if anything short of capital from the government will soothe markets that are increasingly questioning whether Citigroup has enough capital to withstand the recession, the person said.

The global banking titan’s shares slid a combined 55 percent Thursday and Friday and ended the week at $3.77 on fears that it will have to take even bigger charges for loan losses. The stock traded as high as $35.29 last December.

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