Asian trade: Asian markets managed to recover from the lows seen near the opening bell, while U.S. futures stayed in the green during the Asian session, after some unconfirmed rumors said that Citigroup is heading towards nationalization.
A WSJ report stated that the U.S. government is preparing to increase its stake in Citigroup, one the largest banks in the U.S. financial system. Most likely, authorities are looking to swap their preferred shares to common ones, increasing the bank’s stake up to 40%. However, the report says that Citi’s executives are looking for a much smaller stake, around 25%.
The implications of such a move are widespread, and the market’s reaction will depend on the terms and conditions of the swaps. Some shareholders might be tempted to sell their share, since such an action taken by the government will dilute their stake in the bank, most likely, triggering a sell-off in the financials. Other investors might be tempted to buy the bank’s shares, because the government would act as a backstop against any other declines (or deterioration) in the bank’s balance sheet.
Rumors had been running wildly for a while about Citi and BaC’s nationalizations, but were never confirmed. Citigroup’s shares trade near an 18-year low, dropping as much as 40% in the last two weeks and a little more than 90% in the last year. Its current market cap is only $10 billion, down from $250 billion at the beginning of 2007.
The Nikkei fell 17.54 points (0.24%) to 7,398.84. The Australian S&P slide 45.40 points (1.33%) to 3,357.00.
Crude oil moved very little in the Asian session. Crude oil for March delivery rose $0.05 to $40.10.
Gold declined tonight, after it tested the $100 benchmark in the last few days. Bullion for immediate delivery fell $9.80 to $992.40.