Investing in Banks that are "TOO BIG TO FAIL"

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Citibank has some 2Trillion of assets and falls under the category of "too big to fail"

Any problems with the banks will lead to a bail-out. So the bank will be more or less "safe". So that's what many says.

However there are uncertainties over what terms the bailouts will be. In case it is being re-nationalized in a bail-out, it will almost always be under very bad terms. And when that happens, the shareholder's interests may or may not be protected. Given that the bailor is most likely the US government who is already in debt tot he tune of >10 Trillion USD with a huge annual deficit funded practically by China, Japan, South Korea and Middle east sovereign funds, I suspect the government cannot be too generous.

Any offers to bail-out will likely have very stringent terms that could potentially and almost instantly diluted the ownership of existing shareholders.

If no bail-out is necessary, this would be the ideal situation, because that would mean that the bank would not need to sell at ridiculous prices. And when the market volatilty reduces, assets becomes more liquid, Citi can bounce back strongly.


Financials (In millions of USD)
Citigroup
Balance Sheet
Total Assets 2,050,131.00 2,187,631.00 1,884,318.00
Total Liabilities 1,924,069.00 2,074,033.00 1,764,535.00
Total Equity 126,062.00 113,598.00 119,783.00
Cash Flow
Net Income/Starting Line -2,815.00 3,617.00 21,538.00
Cash from Operating Activities 45,442.00 -71,430.00 -44.00
Cash from Investing Activities 14,538.00 -62,377.00 -204,206.00
Cash from Financing Activities -40,461.00 144,494.00 206,487.00
Net Change in Cash 18,202.00 11,692.00 2,882.00
(Source: google finance)