Nationalization rumors slam Citigroup, Bank of America
The hottest rumor on Wall Street today was that the government was planning to effectively nationalize Citigroup Inc. and Bank of America Corp., perhaps as early as this weekend.
That talk has devastated many financial stocks, and hammered the broader market for a second straight session -- although buyers have been returning in the last half-hour.
The nationalization rumors were put to Federal Deposit Insurance Corp. Chairwoman Sheila Bair at an appearance in New York today, and her non-denial answer wasn’t likely to make investors feel better.
"I’d be very surprised if that happened," she said, according to Bloomberg News.
Some investors weren't sticking around to find out if the rumor was true: Citigroup fell as low as $3.36 early in the session and about 11 a.m. PST was off 43 cents to $4.10.
Bank of America fell as low as $7.35 and was off $1.56 to $8.64 about 11 a.m PST.
The Dow Jones industrial average was off as much as 205 points but has pared that to a loss of 43 points at 8,156.
The Dow’s closing low in the fall market collapse was 7,552, reached on Nov. 20.
The latest dive in the financials began early this week on fears that some of the biggest players have become bottomless pits for government capital, as bad loans continue to mount.
Those fears soared late Wednesday on news reports that Bank of America, which got $25 billion under the financial-system bailout Congress approved in October, was negotiating another capital infusion from the Treasury.
Ryan Larson, head trader at Voyageur Asset Management in Chicago, said the rumor today was that the government would take control of Citigroup and Bank of America via a "nationalization in AIG style" -- referring to insurance giant American International Group. The government took a 79.9% stake in AIG last fall in return for loans and capital injections to keep the company afloat.
AIG shares now trade for about $1.40.
The nationalization rumors may just be so much hysteria, but they show how faith in the financial system has again frayed badly. The average big-bank stock has plunged 24% just since Dec. 31.
There was some relative good news from the banking sector today: JPMorgan Chase reported fourth-quarter earnings of $702 million, or 7 cents a share -- a drop of 76% from a year earlier. Still, any profit at all for a bank is a relief these days. JPMorgan’s shares fell as low as $24.75 but were off just 12 cents to $25.79 about 11 a.m. PST.
-- Tom Petruno
The federal government has no choice but to nationize BAC. The big question is will there be any value left for equity owners. Stephen Wagner
Posted by: Stephen Wagner | January 15, 2009 at 12:36 PM
"The federal government has no choice but to nationize BAC."
Why? Why not let them fail and let more responsible smaller banks take its place?
Posted by: Eric | January 15, 2009 at 02:31 PM
i just screened this informative dvd series hosted by James Fallows titled "on the frontlines: Doing Business in China" i suggest it for anyone who is interested in the chinese economy and doing business in china
Posted by: jane | January 15, 2009 at 03:09 PM
I have been a customer of Bank of America for the past five years. I have consistently received either indifferent or hostile service from its employees both at its banks as well as online and especially on their customer service hotlines. As far as I am concerned, they get what they deserve. Let those smart little SOBs see what it is like to live inside your pickup like I have and have to depend on a homeless shelter to take a shower and have a meal. I have got beyond that but Bank of America employees need a big dose of humility. I don't give a rat's a** about them just like they don't care about their customers. They just want to make more and more big bucks by screwing over the Americans in their Bank of "America."
Posted by: Richard | January 15, 2009 at 05:15 PM
BoA's losses come from balance sheet write-downs. The company's equity may be damaged as a result of its M&A activity, but its operations remain strong. BoA is a financial powerhouse that will probably top the $100B revenue mark in coming years, which will cause a rapid rebuild of stockholders' equity. This is a huge opportunity to load up on BAC stock.
Posted by: Anonymouse | January 16, 2009 at 07:17 AM
I hope what the previous responder said is true. I have been acquiring BAC lately as I felt it was significantly under-valued even at $14 / share. Now it hits $7 and there seems to be a bit of a panic setting in. I am holding tight and really on the fence about whether or not to load up more at this basement price. I don't like the nationalization rumors. Part of me thinks it may be a golden goose though, driving the price down to stupid levels and creating great opportunity for those with a stomach for the risk. I'm investing for the long term, so all I need to feel confident about is that Bank of America will be around in 20 years (and not be government owned).
I am also a BofA customer and have been nothing but happy with them. That's the most encouraging thing for me.
Posted by: Jonathan | January 16, 2009 at 10:57 AM
If indeed BAC gets nationalized, I hope that the assets are run by the Government (since it is the tax payers money) instead of the Feds (banking Cartel). It would be an outrage to see BAC and City in charge of the FEDs and not the American People. Oh well, Good Luck to all of you. Make sure to get rid off any Dollar Savings into something else more secure like Euros or Yen. Track Bush's policies and actions for the pass 2 terms and all this mess can be backtracked to his legacy - Give him a Finger when he leaves office; he deserves it!. BUSH MADE THIS MESS, For those who do follow the news should know this but for the one that dont check this Bush press release in 2002. http://www.youtube.com/watch?v=kNqQx7sjoS8&feature=related
Posted by: Chang | January 16, 2009 at 09:15 PM