The Short View: 10 years of CitigroupTen years ago, the Financial Times greeted the news that Citicorp was to merge with Travelers Group to create a financial behemoth called Citigroup (NYSE:C) by predicting that it would "redefine world finance". So it has proved.
It revived hopes for a global financial "one-stop shop" that could cross-sell products over one platform. The deal also meant, to great rejoicing, the end of the Glass-Steagall law, which split commercial and investment banks.
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Rather than a sleek one-stop shop, Citigroup is perceived as unmanageably big.
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More worryingly,
the credit market now believes that the unthinkable, a Citigroup default, is thinkable. Citi's credit default swaps once traded at less than 7.54 basis points over Treasuries - implying it was safer than most governments. During last week's panic over Bear Stearns, they ballooned to almost 250bp and remain near 150bp. As Citi is far too big to be allowed to fail, the chance of it defaulting is roughly equal to the chance of a systemic financial collapse.
YN (FT)