24.11.08 by Rob Gill

Another Victim Of The Credit Crunch

The credit crunch continues to claim the scalps of financial giants with Citigroup becoming the latest victim last week.

After announcing 52,000 job cuts last Wednesday, the shares dropped 23% in one day. Their biggest shareholder, a member of Saudi royalty, then attempted to shore up the share price by publicly backing the management and their actions. This was treated as a “no smoke without fire” statement by the markets with the shares losing a further 23% on Thursday and 16% on Friday, bringing their decline to 60% for the week and leaving government assistance of some form inevitable.

The problems at Citigroup are reflecting a wider view that US banks remain under capitalised, and that both Goldman Sachs and Morgan Stanley are likely to face similar issues. Global markets suffered as a result, although they’ve since rallied as details emerge as to how the US Tarp will assist the ailing institutions.

Markets also reacted positively to Barack Obama unveiling his economic team, specifically the appointment of current Fed president Timothy Geithner to replace the much maligned Hank Paulson as Treasury Secretary.

Amongst all the turmoil money market rates have continued to ease, as a lower than expected CPI inflation figure of 4.5% for October appears to set the stage for a 0.5-1% cut in the base rate as soon as December. 3 month Libor fixed at 4.03% while 2 year Swaps fell to 3.28% by the end of last week.

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