A positive and negative prognostication for investment bankers at Citigroup

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Citigroup may have been given a reprieve by the US government's plan to convert its 7.8% stake of preferred shares to as much as 40% of Citigroup's common stock, but one analyst isn't buying it.

When we dared mention Citigroup to Christopher Whalen, managing director of US firm Institutional Risk Analytics, he came up with the following (not entirely verbatim) rant. Whalen has rated Citigroup 'D' for significant degradation, which gives you an idea of his sentiments about the organization.

Wait until you see the real cost of the structured exposures at Citi. I don't think the whole organization is going to drop its first quarter financials....At the year end they had $106bn in revenues, $61bn in SGA [selling, general and administrative expenses] and $33bn in provisions for future losses. But net credit losses were $22bn in 2008 and could easily rise to three or four times that - they could go to $66bn and...the market is going to puke...The bottom line is that total losses throughout the cycle at Citi could be half a trillion dollars."

Whalen's argument is put a little more sophisticatedly here.

Fundamentally, he thinks the US government needs to 'make whole' the depositors and restructure the bond holders - "We need to have an adult conversation with the Chinese and Europeans who own these bonds."

The good news in all this is that Whalen also thinks that a capital markets component of Citigroup might outlive the predicted turmoil. "If you separate out the stupidity that they did in structured finance, the bread and butter equity capital markets business at Citigroup is viable," he said, a little less energetically.