There are a few really interesting things in the the Journal’s story today on Citigroup and some of the benefits of mega-huge banks—as well as the difficulties of extracting them from the global financial system.
For one, the paper says that its Global Transaction Services unit (“unit” seems like the wrong word for something that’s bigger than most countries’ gross domestic products) was a key factor in its getting hundreds of billions of dollars in bailout money (in direct loans and asset guarantees).
The system makes it easier for corporate treasurers to manage their finances, and many corporate and government clients outsource a wide range of other finance work to GTS.
Citigroup executives called this to the government’s attention in November 2008, when the company was on the ropes. Executives told officials with the Treasury Department and the Fed that GTS’s technology and presence in more than 100 countries made it too dangerous for the U.S. to let Citigroup collapse.
This seems like new information on the bailout:
The Treasury gave the bank a second big helping of $20 billion just six weeks after an initial $25 billion infusion from the Troubled Asset Relief Program, partly in recognition of GTS’s importance to the financial system, according to government and company officials.
The Journal also digs into how Citigroup has leveraged its size, and its status as a government-sponsored enterprise—to sort of misuse a term— to get business that might have gone to smaller competitors:
When bidding for new federal contracts, some GTS executives have cited the government’s stake in Citigroup, said a person familiar with the matter. Their pitch to the government: “You own us. Isn’t it in your best interest for us to succeed?”
That argument has worked, apparently:
Since mid-2008, the amount of revenue GTS gets from the U.S. government has more than doubled, executives say. That has made the federal government and Citigroup more dependent on each other than ever.
Good times in global capitalism!
One problem is that the Journal says as fact in the nutgraph that the “GTS unit is so deeply intertwined with the rest of Citigroup that splitting the unit off would leave some governments and companies in the lurch.” But it doesn’t really supports that last sentence in the rest of the text.
That aside, this is a good story looking at some of the plumbing of the global financial system.