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Citigroup and JPMorgan Still at Risk, Says Analyst

Posted Nov 18, 2008 11:27am EST by Henry Blodget in Investing, Newsmakers, Recession, Banking
Related: c, jpm, bac, ^dji, ^gspc

Now that Citigroup has announced massive costs cuts and been bailed out by taxpayers, the worst is over, right?

Nope, says Christopher Whalen, Managing Director at Institutional Risk Analytics. Citigroup is still hugely exposed to weakening consumer debt, and its loans are going bad at the highest rate in the industry. Thanks to an accounting-rule change, Citi will also be forced to put another $150 billion of "off-balance sheet" debt back on its balance sheet, which will put it in an even more precarious position. Citi will end up needing another cash infusion from the government, Whalen says, and this will dilute existing shareholders.

Nor is Citigroup the only huge bank for which the future is bleak, says Whalen — JPMorgan is next in line. And before the financial crisis is through, taxpayers will have to bail out JPM again, too. (Note: Whalen has no position in Citi or JPMorgan.)

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