Midday Market Update: Markets, ETFs Dusting Off After GDP, Citigroup News

February 27th at 11:00am by Tom Lydon

ETF Update The U.S. government is offering a trade to Citigroup Inc. (C) for $25 billion in emergency bailout money in exchange for a stake in the bank, giving a rally to stocks, exchange traded funds (ETFs) and investors.

The U.S. government is asking for a 36% equity stake in the struggling bank in exchange for $25 billion in emergency bailout money, leaving taxpayers and voters vulnerable. Martin Crutsinger for the Associated  Press reports that this deal is the third attempt for the bank in the past five months; it’s contingent on private investors agreeing to a similar swap.

The swap of $25 billion of preferred shares into common stock will expose the government to the same risks facing other holders of the bank’s common stock. Needless to say, the shares in the financial sector and for the bank have plunged upon the news.

The Federal Deposit Insurance Corp. now expects that bank failures will cost the insurance fund around $65 billion through 2013. The swirl of bank failures have depleted the FDIC’s insurance fund and caused a hike in the fees that banks pay for the insurance, and levied an emergency premium in a bid to collect $27 billion this year, reports Marcy Gordon for Associated Press.

The emergency premium, to be levied on the roughly 8,500 federally insured institutions on June 30, will be 20 cents for every $100 of their insured deposits. The past represented 6.3 cents for every $100.

  • SPDR KBW Bank (KBE): down 40% year-to-date; up 21.5% for the week; Citigroup is 5.2% of assets

The latest GDP reading did little to catch the attention of investors, indicating the bad news for Citigroup has already taken center stage on most people’s minds. Gross domestic product contracted at a 6.2% annual pace from October through December, the most since 1982. Consumer spending declined the most in almost three decades, reports Timothy R. Homan for Bloomberg.

Oil prices have dipped below $43 per barrel, wiping away any gains from the slight rise above the $40 per barrel mark. Sandy Shore for the Associated Press reports benchmark crude for April delivery fell $2.42 to $42.80 a barrel in morning trading on the New York Mercantile Exchange. This drop comes after two consecutive days of gains.

  • United States Oil (USO) down 38.9% over three months; up 12.2% for one week

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tickers

KBE USO