Report: Citi in Talks to Hand 40% of Company to Government

Citigroup is reportedly in talks for the federal government to take a total of 40% of the bank, the Wall Street Journal is reporting. What is remarkable about the news is that purportedly Citigroup “proposed” the transaction to the government.

On several levels, the precedent is remarkable. A 40% stake in Citi amounts to nationalization, however you define the term. And the fact that Citi is going to the government with the idea, rather than the other way around, implies that the bank supports the concept, or does not appear confident in its ability to rise over market pessimism regarding its future without nationalization.

Bank of America, in contrast, came out forcefully with a statement that effectively says it is not pursue government cover. “We see no reason to do that,” BAC said.

Nevermind the nationalization drumbeat that Roubini is sounding, the Obama administration needs to break Citi up and diffuse its risk. It can and should be done now, before taxpayers sink more capital into the New York bank.

Citi has already received $45 billion of TARP funds. The government is also backstopping $301 billion of Citigroup assets.