Citi bonanza for Goldman or Morgan?

According to

A purchase of Citigroup Inc. would “significantly” add to Goldman Sachs Group Inc. or Morgan Stanley’s earnings as long as the U.S. government absorbed losses on the embattled bank’s assets, according CreditSights Inc.

Buying Citigroup “would be significantly accretive to Goldman and Morgan Stanley’s earnings as the potential buyer would be acquiring a significant future earnings stream for a relatively low price,” David Hendler, an analyst at CreditSights in New York, wrote in a report yesterday. The buyer “would probably receive government support if it was needed.”

Goldman Sachs and Morgan Stanley were the two biggest U.S. securities firms before converting to bank holding companies in September. They took the step after smaller rival Lehman Brothers Holdings Inc. was forced into bankruptcy, undermining investors’ faith in investment banks that rely on the constricted debt markets for financing. All three firms are based in New York.

Goldman and Morgan Stanley have said they would consider acquisitions to help build their deposit bases. Spokespeople for both companies declined to comment on whether they would consider buying Citigroup.

Citigroup’s $2 trillion of assets would have to be booked by any acquirer at current market values, which could translate into about $100 billion of writedowns, CreditSights estimated. To help facilitate a transaction, the Federal Deposit Insurance Corp. could provide loan-loss support or the U.S. Treasury could contribute money from the $700 billion Troubled Asset Relief Program passed by Congress in October, the report said.

In related news, analysts predict that the purchase of Citigroup Inc. would “significantly” add to Dollars & Sense’s earnings as long as the U.S. government absorbed losses on the embattled bank’s assets…

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Chris Sturr

Chris Sturr is co-editor of Dollars & Sense magazine.

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