The near-death moment that Citi experienced in November is as close as one can get to a perfect lesson in confidence in banking, and how to lose it. Everyone knows that without confidence banks fail – fast.
So what caused confidence in Citi to evaporate so quickly? Within five days its stock fell 60%, below $5 – a level at which certain institutional funds became forced sellers of the stock. It was a precipitous descent that appeared to ignore reasonable assessments of whether the bank was a going concern and that would lead – inevitably – to a bail-out. And so it came to pass, with the terms of government assistance so generous as to support a general rally in financial stocks and Citi’s CDS snapping in by nearly half to 248bp.
Given the contrast with the onerous terms imposed on another institution deemed too big to fail, AIG, it was hardly surprising that Citi’s management were almost triumphant at their survival. Who can blame them?
One year ago, when Vikram Pandit was appointed chief executive, it was clear that his was a difficult – some would say near-impossible – task. On its way to becoming the biggest bank in the world, Citigroup has accumulated assets and businesses at breakneck speed.