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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
investment vehicle (SIV) write-downs. The bank’s stock fell in the following
week and, by November , hit single digits for the first time since .
The market’s unease was heightened by press speculation that the company’s
board had lost confidence in senior management, Kelly said. On November , the
company announced that the value of the SIVs had fallen by . billion in the
month since it had released third-quarter earnings. Citigroup was therefore going to
bring the remaining . billion in off-balance-sheet SIV assets onto its books. In-
vestors clipped almost another off the value of the stock, its largest single-day
drop since the October stock market crash. Two days later, the stock closed at
.. Credit defaults swaps on Citigroup reached a steep , annually to pro-
tect million in Citigroup debt against default. According to Kelly, these devel-
opments threatened to make perceptions become a reality for the bank: “[Investors]
look at those spreads and say, ‘Is this some place I really want to put my money?’ And
that’s not just in terms of wholesale funding, that’s people who also have deposits
with us at various points.”
The firm’s various regulators watched the stock price, the daily liquidity, and the
CDS spreads with alarm. On Friday, November , the United Kingdom’s Financial
Services Authority (FSA) imposed a . billion cash “lockup” to protect Citigroup’s
London-based broker-dealer. FDIC examiners knew that this action would be “very
damaging” to the bank’s liquidity and worried that the FSA or other foreign regula-
tors might impose additional cash requirements in the following week. By the close
of business Friday, there was widespread concern that if the U.S. government failed to
act, Citigroup might not survive; its liquidity problems had reached “crisis propor-
tions.” Among regulators at the FDIC and the Fed, there was no debate. Fed Chair-
man Bernanke told the FCIC, “We were looking at this firm [in the fall of ] and
saying, ‘Citigroup is not a very strong firm, but it’s only one firm and the others are
okay,’ but not recognizing that that’s sort of like saying, ‘Well, four out of your five
heart ventricles are fine, and the fifth one is lousy.’ They’re all interconnected, they all
connect to each other; and, therefore, the failure of one brings the others down.”
The FDIC’s Arthur Murton emailed his colleague Michael Krimminger on No-
vember : “Given that the immediate risk is liquidity, the way to address that is by
letting counterparties know that they will be protected both at the bank and holding
company level. . . . [T]he main point is to let the world know that we will not pull a
Lehman.” Krimminger, special adviser to the FDIC chairman, agreed: “At this stage, it
is probably appropriate to be clear and direct that the US government will not allow
Citi to fail to meet its obligations.”
Citigroup’s own calculations suggested that a drop in deposits of just . would
wipe out its cash surplus. If the trend of recent withdrawals continued, the company
could expect a outflow of deposits per day. Unless Citigroup received a large and
immediate injection of funds, its coffers would be empty before the weekend. Mean-
while, Citigroup executives remained convinced that the company was sound and
that the market was simply panicking. CEO Pandit argued, “This was not a funda-
mental situation, it was not about the capital we had, not about the funding we had at
that time, but with the stock price where it was . . . perception becomes reality.” All
