The Wall Street Journal reports that the FDIC is pushing for a shake-up of Citigroup’s top management. The FDIC’s under chairman, Sheila Bair, is also pressing regulators to lower the government’s ranking of Citigroup’s health.
In testimony at a Senate hearing this week, Bair “called for a new system of supervision that prevents institutions from taking on excessive risk and becoming so large their failure would threaten the entire financial system,” reports CBS News.
The change would give regulators more control over troubled Citigroup (CIT:NYSE). Citigroup has received $45 billion in government bailout funds as part of the Troubled Asset Relief Program, or TARP.
But this could be a tough battle for Bair, as the government’s legal authority to take over large banks does not extend to multinational financial conglomerates. Bair suggested regulators form a new “systemic risk council” made up of the FDIC, Treasury Department, Federal Reserve, and the Securities and Exchange Commission. The council would monitor large institutions and potential risks they pose to the country’s financial system.
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Citigroup was identified as one of 19 firms that need extra capital to meet the Fed’s stress test. While Bank of America, Wells Fargo and Company and seven other firms began raising the extra capital by selling shares, Citigroup has struggled to get the money it needs, reports Bloomberg.
Citigroup reported first quarter profits of $1.6 billion, but many experts concluded it came from relaxed accounting principles. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.
Many analysts and experts are concerned over Citigroup’s health. Several months ago, Seeking Alpha wrote that “a merger between Citigroup and Goldman Sachs would give Citigroup much more credible management, assuming that the Goldman guys took over most of the top jobs, and would give Goldman a much-needed deposit base, not to mention huge distribution capacity through Smith Barney.”
Zachary Scheidt, senior analyst for Taipan’s New Growth Investor, says the government isn’t alone in “taking over companies.” “With so many companies strapped for cash and struggling to make a profit, healthier competitors are finding it easier to buy out the weaker companies.”
Scheidt calls it “corporate pirating” on Wall Street. “These healthier competitors are strengthening their market share by eliminating the competition through takeovers.”
In his recent issue of New Growth Investor, Zach identifies takeover companies he thinks are worthy investments for investors. “By investing in these corporate pirates, investors get to leapfrog their way to wealth.”
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