Citigroup rescue considered too early to call

Washington —- Taxpayers may be wondering why they’re forking over more money to rescue yet another behemoth, Citigroup, even as their own nest eggs crack and jobs evaporate.

The answer is that Uncle Sam thinks letting Citi fail is unthinkable.

The government has decided guaranteeing hundreds of billions of dollars in possible losses and injecting $20 billion more into Citi trumps the alternative —- a panic that could leave retirement accounts and investment portfolios of millions of ordinary Americans in tatters and shove more people out of jobs.

Whether the government’s rescue of Citigroup Inc., announced late Sunday, will ultimately prove a good deal for taxpayers is hard to tell. In part, that’s because no one seems sure what Citi’s troubled assets are actually worth.

If the gamble pays off, Citigroup would be back on firm footing, unhinged financial markets would recover and taxpayers would turn a profit. If it doesn’t, taxpayers would take a hit and possibly have to rescue still more huge financial institutions, digging the bailout hole even deeper.

“It is way too early in this crisis to say whether it is a winner or a loser,” said Cornelius Hurley, a professor and director of the graduate program in banking and financial law at Boston University. “I don’t know if I am exhilarated by the prospect of being a shareholder in Citi or AIG. I’d rather have the money in my 401(k).”

The Bush administration, which leaves office on Jan. 20, has decided that Citigroup, insurer American International Group and mortgage giants Fannie Mae and Freddie Mac are, indeed, too big to let fail.

Yet Treasury Secretary Henry Paulson has opposed using money from the $700 billion financial bailout to help Detroit automakers or financially troubled homeowners. The bailout money, Paulson has said, was intended to stabilize the fragile financial system, including major banks.

The case for rescuing Citigroup, a company with 200 million customers and operations in more than 100 countries, may be more persuasive than the case for smaller banks whose reach doesn’t extend so far.

The government action makes other financial companies more likely to seek federal aid.

President George W. Bush held open the prospect Monday of similar arrangements should other companies falter. Paulson could decide to tap the second $350 billion installment of the $700 billion package.

Treasury and the Federal Reserve are exploring using some of the bailout money to bankroll a new loan facility to help companies that issue credit cards, make student loans and finance car purchases.

The Treasury chief has been hammered by critics for his handling of the $700 billion bailout, especially for frequent and confusing shifts in strategy.

Paulson abandoned an initial approach to buy rotten mortgages and other bad assets from banks and focused instead on buying ownership stakes in banks.

“Paulson is doing a poor job of explaining this to Mr. and Mrs. Kettle, but it is tough to explain all of this in a sort of sound bite,” said Sean Snaith, economics professor at the University of Central Florida.

The $20 billion cash injection by the Treasury Department will come from the $700 billion package. The capital infusion follows an earlier $25 billion infusion into in which the government also received an ownership stake.

As part of the plan, Treasury and the Federal Deposit Insurance Corp. will guarantee against the “possibility of unusually large losses” by Citi on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

“An eclectic response is necessary given how the crisis is evolving,” Snaith said.

“It is like battling a virus that is mutating.”

CITIGROUP IN ATLANTA

Although Citigroup doesn’t have any bank branches in metro Atlanta, its imprint is felt locally:

> Primerica, Citi’s life insurance and financial services company, is based in Duluth, where it employs 1,800 workers.

> Smith Barney, Citi’s securities brokerage firm, has 15 locations across the state, including six in metro Atlanta.

> CitiFinancial, the company’s consumer finance arm, has about 82 locations in Georgia, including 25 in metro Atlanta.

> Citi employs 3,000 workers in Georgia, according to a company spokeswoman