Citi, Bank of America drop on nationalization concern

Published: February 20, 2009

Citi shares dropped 21% to $1.99, their lowest level since early 1991. Bank of America fell 17% to $3.27, and earlier touched a record low of $3.19, according to FactSet Research data.

A Citigroup (C:1.96, -0.55, -21.9%) spokesman highlighted the bank’s high Tier
1 capital ratio, a measure of financial strength, and said it continues to cut assets on its balance sheet, reduce expenses and streamline its businesses for future “profitable growth.” He declined to comment further.

Citi is not having conversations with the U.S. government about nationalization, Reuters reported, citing two unidentified people close to the bank. However, those people also said the U.S. Treasury has not disclosed much more to Citigroup than it has to the broader public about its plans for the banking sector.
“We see no reason to nationalize a bank that is profitable, well capitalized and actively lending,” said Scott Silvestri, a spokesman at Bank of America (BAC:3.24, -0.69, -17.6%) .

Chief Executive Ken Lewis said Thursday during a senior leadership meeting that policy officials in Washington have assured him nationalization isn’t an option being considered, The Wall Street Journal reported Friday.

The U.S. government injected more than $100 billion into the nation’s largest banks last year to bolster capital that’s been whittled away by a surge in defaults on mortgages and other loans.

Citi and Bank of America have received the most support, getting government guarantees to protect them against losses on toxic assets, as well as direct investments.
However, shares of the two banks continued to slump, prompting some experts to call for the government to take control, at least temporarily.
“The list of those people in favor of nationalization, our longstanding recommendation for the biggest banks in the financial sector, continues to grow,” said Barry Ritholtz, director of equity research at quantitative research firm Fusion IQ.

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