Citigroup Rescue Does Not Benefit Banks - Nov 24, 2008

At 13:50 IST, the BSE Bankex was down 4% at 4,414.77. It underperformed the Sensex, which was down 1.50% at 8,781.81.ICICI Bank, State Bank of India, HDFC Bank, Axis Bank, Bank of India, Bank of Baroda and Kotak Mahindra Bank were down by 0.52% to 4.86%.The US government bailed out Citigroup Inc, agreeing to shoulder most of the potential losses on $306 billion of high risk assets, in its most sweeping rescue of a US bank yet in the global economic crisis.

The government will also inject $20 billion of new capital, on top of $25 billion it just put into the bank, and receive preferred shares with an 8% dividend. Citigroup received the latest infusion after its shares plunged 60% in the last week, amid worry it lacked enough capital to survive.

The financial crisis, that began 15 months ago, is now spreading and recent months have seen government taking over quasi-public mortgage firms Fannie Mae and Freddie Mae, bankruptcy of Lehman Brothers, sale of Merrill Lynch, rescue of American International Group among others.

The BSE Bankex had underperformed the market over the past one month till 21 November 2008, declining 21.28% as compared to the Sensex's 16.55% decline. It had, however, outperformed the market in the past one quarter, falling 30.09% as compared to the Sensex's fall of 37.41%.