11-22-08Merced Sun-StarPublice Notice...11-21-08Public Hearing - Merced County Planning CommissionTo amend the Circulation Chapter of the Merced County General Plan to include the SR152 Los Banos bypass project route.http://www.legalnotice.org/pl/mercedsun-star/ShowNotice.aspx"PUBLIC HEARING" A public hearing will be held by the Merced County Planning Commission on Wednesday, December 3, 2008 at 9:00 a.m., in the Board Room on the Third Floor, 2222 "M" Street, Merced, California, to consider: General Plan Amendment No. GPA08-002 - Merced County Public Works Department - To amend the Circulation Chapter of the Merced County General Plan to include the SR152 Los Banos bypass project route. The purpose of this action is to preserve the identified right-of-way alignment. The proposed bypass traverses the northern boundary of the City of Los Banos and is located on land in the county that is designated Agricultural in the General Plan and centrally zoned A-1 (General Agricultural). THE ACTION REQUESTED IS TO APPROVE, DISAPPROVE OR MODIFY THE APPLICATION. JH All persons interested are cordially invited to attend. Written comments are encouraged and should be sent to the Planning and Community Development Department, 2222 "M" Street, Merced, California 95340, prior to the hearing. If you have any questions, please call the department at (209) 385-7654. Sincerely, Robert A. Lewis Development Services Director Legal LB November 21, 2008 California ranks third in U.S. in unemployment...Los Angeles TimesMerced Sun-Star        Marketplace        Saturday, November 22, 2008 DLos Angeles - California's unemployment rate soared to a 14-year high in October, hitting 8.2%, and economists predicted that it could rise substantially over the next year and a half.In October, the state's economy shed 26,400 people from its payroll, raising the total number of lost jobs to 101,300 since October 2007, the Employment Development Department reported Friday.Merced County's employment rate rose from 10.9 percent in September to 11.7 percent in October. Stanislaus County's jobless rate in October was even higher at 11.8 percent.And the situation is about to get worse, predicted Ross DeVol, director of regional economics at the Santa Monica-based Milken Institute. The unemployment rate is seen reaching 9.9% in the first quarter of 2010, with the loss of 360,000 more jobs between October and the fourth quarter of 2009.The hemorrhaging of jobs is "another indication that the state is plunging into what is likely to be a long and deep recession," said Stephen Levy, chief economist and director of the Center for the Continuing Study of the California Economy in Palo Alto.California's jump in the monthly unemployment rate from 7.7 percent in September was even larger that the recently posted increase of four-tenths of a point to 6.5 percent in the national unemployment rate.The state's unemployment rate ranks third in the U.S., exceeded only by Michigan and Rhode Island at 9.3 percent each "A financial market crisis, the loss of wealth for consumers and the growing worldwide recession are feeding on themselves as consumers and businesses grow scared and cautious," Levy said.The upshot, he warned, is "a continuing decline in consumer spending" that is threatening to make the holiday shopping season less than jolly for retailers.The drop in spending has flattened seasonal hiring of salespeople and pushed retail employment into negative territory along with housing, construction, finance and some types of manufacturing, said Jerry Nickelsburg, a senior economist with the Anderson Forecast at the University of California, Los Angeles, specializing in California and Los Angeles."This is a consumption-driven downturn," he said.What California needs to get out of its economic distress is a massive stimulus package from Washington, economists said.They called the $6 billion extension of unemployment benefits, approved by President George W. Bush on Friday, a good first step.UC Merced can't be ignored...Tom Gustafson, freshman at UC Merced, hails from San Diego.http://www.mercedsunstar.com/177/v-print/story/560331.htmlWhen applying to colleges, most high school seniors ignore UC Merced since it's in the middle of nowhere. However, despite the vast majority's criticisms of the "first American research university of the 21st century," UC Merced's attendance continues to grow.With the estimated incoming freshman class being larger than the number of all the current students combined, more dormitory buildings are being built. While UC Merced may not boast the exotic location of, say, UC Santa Cruz, there is still a lot of merit for students in attendance.Besides the proximity of both Yosemite National Park and UC's Sierra-Nevada Research Institute, a major factor of Merced's appeal lies in the hospitality of people in the surrounding community. One major benefit of Merced is the small businesses that line Main Street.One local business, Cigar Monkey, has earned the acclaim of many a student. "We go to Cigar Monkey to relax," said freshman Chris Ganzer, one of the shop's most affluent patrons. "The relaxed country-living feel is a great day-vacation. The people there are very nice and generous. They have great relations with each customer and value them all greatly."In a larger city, such as UCLA's Westwood and surrounding L.A., the small-business country-living style would definitely be a rare commodity.Here in Merced such places are just around the corner.Furthermore, what makes these businesses so appealing is not the walls within which they function, or the products they sell, but rather the people who work in them -- indeed, people hard to find in this day and age.Ganser's discovery of Cigar Monkey is unfortunately not so common among the vast majority of students.Many UC students tend not to stray far from the campus too often, except for trips for precious commodities (groceries).Freshman Anna Schoendorfer, for example, indicated that she had "no relation with the townsfolk." While Schoendorfer's indifference is not exactly praise for an up-and-coming college town, at least no invariably negative experiences were shared. Such is not always the case."I found out why people lock their doors at night," said sophomore Ryan Englert. "We went to 7-Eleven, and these guys started to follow us. ... They pulled a gun on us, and told us he would've shot us if he wasn't feeling so nice."It's an unfortunate reality, but run-ins like Englert's happen just as much, if not more so, in any town.Englert's experience has tainted his thoughts of the locals, and with good reason. As stressful an experience as it was, isolated incidents like it are for the most part rarely a reality for students. At freshman orientation, a police officer proceeded to tell freshmen about the "good and bad" parts of town, so incidents such as these could be avoided.Just as with any population, Merced's is bound to have its fair share of great folks, and not-so-great ones. As an up-and-coming college town, Merced is bound to be segregated, as both UC students and the citizens of Merced learn to get along with one another. "Most townspeople are indifferent toward UC students. I'd say a lot of them actually do not like us," said freshman Gino Orlando.Freshman Marshall Aden has "heard that a lot of the locals feel that the UC campus has destroyed the small farming-town aspect of Merced."From conservative residents fearful of UC changing the feel of Merced (as a liberal campus), to UC students distraught after a mugging at gunpoint, people both on and off-campus have staked their claims against one another. Perhaps with time serving as a catalyst for compromise, a relationship like that between Ganser and the owners of Cigar Monkey can be achieved among all UC students and the people of Merced. As junior Aaron Daniel put it: "Although UC Merced students were initially very isolated from the local population -- Merced College students to be precise -- as students from each college began to visit each other's schools, the demographics began to mix. Now, students from both colleges live in the same houses, attend the same parties and date. During my time here the two colleges have learned to cooperate -- Merced College lets us use their sports fields for practice. In earlier years there was some animosity between the two colleges, but since then things have improved." Perhaps Daniel's thoughts on Merced College and UC Merced can serve as an analogy for the townspeople of Merced and UC students one day in the future.Coexistence isn't always an easy feat to accomplish, but with the great potential of both UC Merced and Merced's friendly residents, it's clear that a solid, positive relationship between the two can eventually be established.Stockton RecordFed order Delta Bank of Manteca to shape upComptroller says improve financial stability...Joe Goldeenhttp://www.recordnet.com/apps/pbcs.dll/article?AID=/20081122/A_BIZ/811220320MANTECA - Federal regulators issued a cease-and-desist order on Delta Bank, National Association effective Oct. 14, giving the bank until the end of this month to comply with numerous conditions to ensure its future stability.In a 26-page consent order made public Friday by the U.S. Treasury Department's Comptroller of the Currency, the 34-year-old, five-branch community bank headquartered in Manteca agreed to comply with regulators without admitting or denying any wrongdoing."We are well on our way to full compliance with the order. We'll meet all of those compliance dates," Delta Bank President and CEO Warren Wegge said Friday, noting that his small bank is one of only a handful of community banks with a national charter rather than a state charter.The fact that it serves the northern San Joaquin Valley, the epicenter of the nation's mortgage meltdown, has put it on federal regulators' radar along with the large nationwide banks, such as Washington Mutual, that have gotten into trouble, Wegge said."They are really taking a much more aggressive stance on banks in the Central Valley that lent on real estate. If you are lending on any kind of land and development, or anything to do with construction of single-family homes, their stance is it's problem credit. In reality, we have a good relationship with the regulators," Wegge said."We're comfortable that this is not going to be a long-term event," he said.Stockton banking expert Joe Johnson, who spent 36 years in commercial banking and now teaches entrepreneurship at University of the Pacific's Eberhardt School of Business, explained that a cease-and-desist order is the most serious level of enforcement action the OCC can take."They are going to want to see those things done. Regulators these days are feeling their oats; they will do what they think they have to do," Johnson said, adding that such an order indicates significant problems and concerns that demand the attention of the bank's entire management team and board of directors, who can be held personally liable for noncompliance.In its latest filing June 30 with the Federal Deposit Insurance Corp., Delta Bank reported almost $156 million in assets, a decrease of $5.6 million from a year earlier. Deposits shrank by almost $5 million during that period to about $137 million. The bank's loan portfolio dropped from $99.7 million in 2007 to $95.1 million in 2008, a decrease of $4.6 million, while the bank increased its loan loss allowance to cover problem loans from just over $1 million to $3.3 million.A spokesman for the federal Office of the Comptroller of the Currency, which issued the order, said Friday it is agency policy not to comment in general or specific terms on enforcement actions against banks.The extensive order requires many actions on the bank's part, including appointing a three-person compliance committee that may only include one bank employee or controlling shareholder.That committee must issue a written progress report to the OCC every 30 days including all actions needed and taken toward complying with the order. The report must also detail results of those actions.The bank needs to institute a contingency funding plan that ensures the bank can "remain liquidity solvent through several stress scenarios," which means Delta Bank must show it has access to enough funds to meet its obligations.The bank must maintain minimum capital ratios of 9 percent of its total assets and risk-based capital of at least 11 percent of its risk-weighted assets. That is above the minimum standards.According to the OCC, when this occurs, it indicates Delta Bank is not well-capitalized.Wegge said the bank's capital ratios are at 11 percent and 20 percent, respectively, and have never been below what federal regulators have called for."We are already there. They want you to have a plan to make sure you maintain that level," he said.The consent order also implements strict rules as to when Delta Bank can declare dividends for its shareholders.By Nov. 30, the bank must develop a three-year plan. As part of that requirement, it must employ an independent, outside individual with "demonstrated experience and skills" to lead bank management's efforts to resolve and reduce problem assets. This person, to be known as a loan workout specialist, will answer directly to Delta Bank's board of directors.The three-year plan must include specific time frames for meeting certain requirements. It's expected to establish objectives and projections for the bank's overall risk profile, earnings performance, growth expectations, balance-sheet mix, off-balance sheet activities, liability structure, capital and liquidity adequacy, product fine development and market segments that the bank intends to promote or develop, together with strategies to achieve those objectives, that are specific, measurable and verifiable.The order also places very specific restrictions on Delta Bank's ability to extend credit in the future."We have certainly agreed to make any corrections they deem appropriate," Wegge said. "An important thing is that since their findings (in May), we have reduced our problem loan portfolio by a third. In just a short period of time, we were able to move out those loans."Despite being the only bank headquartered in Manteca, it ranks fifth in the city at 9 percent in terms of market share of deposits, according to the FDIC. As of June 30, Bank of America held 18 percent of the city's $740 million in deposits, followed by Bank of Stockton with 17 percent; Washington Mutual, 17 percent; and Wells Fargo, 13 percent. Branches of five other banks hold the remainder of the city's deposits.San Francisco ChronicleCandy From A Baby...Cameron Scott, The Thin Green Linehttp://www.sfgate.com/cgi-bin/blogs/sfgate/detail?blogid=49&entry_id=32898took on a self-imposed challenge earlier this week to find at least two instances of Bush loosening environmental regulations. (I'm giving myself bonus points for moves that would hurt national parks or endangered species.)So far it's like taking candy from a baby, it's so easy. I've gotten several emails from environmental groups with their lists of recent grievances. (See the extended entry for the one sent by the National Parks Conservation Association.) And i just stumbled on an L.A. Times article called, "Bush angers environmentalists with last-minute rule changes." Jackpot!Most of what the article lists I already knew about, but I had willed myself into forgetting Bush's move to allow more mining waste to flow into rivers and streams. The regulation is the only limit on how much mountaintop removal mining can occur how close to streams. Mountaintop removal is a practice so destructive that virtually no one outside the coal industry supports it: It is what it sounds like: blowing up mountains to get to the coal underneath. The mountain rubble and toxic remnants of processing the coal are then dumped into mountain streams, killing off an entire ecosystem.And, as if to taunt the growing public concern about factory farming and the greenhouse gases and foul odors it creates, Bush is also pushing to exempt factory farms from air pollution reporting.Overall, Bush has pushed 53 "midnight regulations" through the Office of Information and Regulatory Affairs in the last three weeks. His rate is nearly double Clinton's, though Bubba was much criticized for his last-minute wrangling.More midnight regulations, courtesy of NPCA, after the jump.Guns in Parks: Final rule expected before the end of the year that will allow for concealed weapons to be carried within national parks in states where concealed carry is permitted. NPCA and other park advocacy groups are strongly opposed to this policy, and believe the current policy of requiring guns to be unloaded and stored while being transported in park units should be retained.BLM Oil/Gas Leasing in Utah: The Bureau of Land Management has expanded an earlier proposal to award new oil and gas leases in southern Utah to include sites adjacent to Canyonlands and Arches National Parks and Dinosaur National Monument. The Park Service has strongly objected both to many of the proposed leases near the parks and to the lack of timely consultation with NPS by the BLM. This controversy has received major national publicity in recent days, and appears to be an effort to accelerate leasing in these sensitive areas before this administration leaves office. We recommend the new leasing be limited in scope to the earlier version.Uranium Mining/Grand Canyon: In response to the threat of new uranium leases within two miles of Grand Canyon National Park, this past summer the House Natural Resources Committee passed a mining withdrawal resolution covering more than one million acres of federal lands under the authority of the Federal Lands Policy Management Act. The Interior Department has refused to act to withdraw the lands in question; the new administration should move ahead with the withdrawal.Yellowstone Winter Use/Snowmobiles: In response to two recent court decisions concerning the Park Service's Yellowstone winter use plan, NPS is now considering allowing up to 720 snowmobiles per day in Yellowstone National Park for the next three years, and up to 50/day in Grand Teton NP. NPCA recommends no more than 260 snowmobiles/day for Yellowstone (the average for the past five years) as a temporary one year plan, with the Grand Teton limit only being in effect for one year, rather than being made permanent as NPS suggests. We strongly support a phase-out of all snowmobile use in the two parks.New NEPA Rule: The administration has adopted a reinterpretation of the National Environmental Policy Act for the Department of Interior that allows for broader "categorical exclusions" of the requirement that agencies prepare a Environmental Impact Statement or Environmental Assessment on proposed actions. This new interpretation would mean the proposed "guns in parks" rule could be adopted without an EIS or EA. The previous NEPA policy for DOI should be reinstated.Proposed ESA Regulation: The regulation changes proposed under the Endangered Species Act would allow federal agencies to decide themselves—without consultation with the Fish & Wildlife Service—whether their proposed actions will threaten a species listed under the Act. We are very concerned about the potential impact of this proposal because the Fish & Wildlife Service’s expertise is important to decisions impacting park wildlife, and other agencies such as the BLM and the Office of Surface Mining will be able to take actions more easily without serious considerations of species concerns. This process for determining ESA compliance should continue. EPA Class I Clean Air Protection—EPA has just adopted a new rule later that would weaken the "Prevention of Significant Deterioration" protections mandated under the Clean Air Act for many units of the park system. NPCA and other clean air advocates strongly oppose this proposal, as did NPS and most EPA regional offices. This decision should be reconsidered by the new administration.NPS Revision of Air Quality Guidance to Federal Agency Land Managers: The Park Service proposed in July to revise the Federal Land Managers' Air Quality Related Values Work Group (FLAG) guidance document that establishes procedures for evaluating air pollution impacts in Class 1 park units. We are awaiting a final document. NPCA is concerned that some of the changes may lessen protection for Class 1 parks.Office of Surface Mining Regulation on Excess Spoil and Coal Mine Waste: The federal Office of Surface Mining is in the process of finalizing an administrative rule change that would allow for stream destruction and fill during strip mining operations. NPCA is concerned this rule change would result in damage to more than 2,000 miles of headwater streams in the US, including lands within the Big South Fork National River, the Gauley River National Recreation Area, and the New River Gorge National River. It is important the new administration reconsider this decision.BLM Geothermal EIS: The Bureau of Land Management has recently issued a final Environmental Impact Statement for future geothermal leasing, with a Record of Decision expected very soon. The standard in the proposed new rule would make it difficult to argue that a geothermal lease should not be granted due to adverse impacts on park resources. NPCA and other groups are very concerned this will result in new geothermal leases that will impact Yellowstone National Park and as many as 30 other park units. The incoming administration should assure that future geothermal leasing fully considers and avoids adverse impacts on park geothermal features.Alaska Mineral Leasing: The BLM has just announced its intent to open for mineral leasing about one million acres in southwest Alaska adjacent to Lake Clark and Katmai National Parks, and has recommended that Secretary Kempthorne approve this leasing plan. There is strong opposition from a coalition of organizations concerned about the likely impacts on fish and wildlife and the two parks. If this proposal is approved by Kempthorne, the new administration should assess all options for preventing leasing in this area.Fish & Wildlife Service Proposed Gray Wolf Rule: The US Fish & Wildlife Service has a proposed rule concerning the Northern Rocky Mountain Gray Wolf Population that would remove a portion of the population from the federal list of endangered and threatened species. NPCA is concerned this would have a negative impact on the Yellowstone and Grand Teton wolf populations. The new administration should not allow this proposed reduction in protection for this speciesExperts fear 3rd straight dry winter likely...Kelly Zitohttp://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/22/MNV8149Q32.DTL&type=printableSAN FRANCISCO -- Dodging a disastrous third year of drought in California could take the kind of winter mega-storms that leave almost as much ruin as they do rain.But even a few "pineapple express" storms - torrents of warm, wet air carried from the southwest - won't totally offset two critically dry years and legal rulings that limit water pumping from the Sacramento-San Joaquin River Delta, scientists at a state water conference said Friday."We need much more than average (precipitation) to recover water storage, and even then we face an uncertain future with respect to the delta," said Jeanine Johnson, interstate resources manager for the California Department of Water Resources. "The real message is, we need to plan and prepare as if 2009 will be dry."City representatives, water managers and consumers from across the state heard the twin "D" words - dry and drought - quite a lot at a first-ever winter precipitation outlook conference held Friday by the Department of Water Resources.Although weather forecasts are notoriously tricky (just turn on the 11 o'clock news), a handful of scientists who study everything from oceanography to tree rings gathered in San Diego to parse the available data about California's water history and discuss what it could bode, if anything, for 2009.Some of it didn't sound good.California is in the midst of a two-year drought. So far. Research on tree-ring growth shows the Western United States experienced a prolonged dry spell that lasted 60 or 70 years, during the 1100s."That's certainly a concern from the stand that we've developed our modern civilization during a period that's been relatively wet," said Dave Cayan, scientist at the Scripps Institution of Oceanography.Klaus Wolter, of the Western Water Assessment at the University of Colorado, expects more dry weather in Southern California this winter and an average year in Northern California.An average year wouldn't spell doom for supply conditions in the north. But it wouldn't slake demand from growing cities or dramatically raise state reservoir levels, which stand at 14-year lows. Several urban communities already have instituted mandatory or voluntary water conservation, and farmers have cut back plantings and left some fields fallow.The situation is even more dire in naturally dry Southern California, where some water-thirsty crops and rampant development have strained the water system. Complicating matters for both regions, a federal judge sliced water exports through the Sacramento-San Joaquin River Delta to 35 percent of normal. The move, designed to protect the endangered delta smelt, highlighted the deterioration of an estuary that funnels water to 25 million Northern and Southern Californians.Due in part to the delta decision, operators of the State Water Project in October said they will deliver only 15 percent of the normal supply during the current water year, which runs through Sept. 30, 2009.Nevertheless, some scientists on Friday said there are some small reasons to be optimistic about nature's ability to surprise.Particularly strong winter storms, for instance, are capable of dousing the state over several days with as much as one-third of its annual water supply. Some indicators point to the possibility of such this season, according to Mike Dettinger of the U.S. Geological Survey."A few storms can make a huge difference in California," Dettinger said. "They're big guys ... but they're not just disasters, they're a huge part of our water supply."Los Angeles TimesFINANCIAL CRISISDowney Savings, PFF Bank seized by federal regulatorsThe Southern California thrifts are the latest to fail in the mortgage meltdown. U.S. officials say the banks' branches will continue operating as usual under Minneapolis-based U.S. Bank...E. Scott Reckard and Tiffany Hsuhttp://www.latimes.com/business/la-fi-banks22-2008nov22,0,5671845,print.storyFederal regulators seized Downey Savings & Loan and PFF Bank & Trust late Friday, saying hundreds of millions of dollars in bad loans from the housing bubble had rendered the Southern California banking fixtures unsound.The banks' branches will continue operating as usual under the ownership of Minneapolis-based U.S. Bank, one of the country's largest banks, and no depositors will lose any money because of the failures, regulators said.Newport Beach-based Downey lost $547.7 million in the first nine months of 2008, largely because of risky "option ARM" mortgages -- adjustable-rate loans that let borrowers pay so little each month that their loan balances rose.PFF, short for Pomona First Federal, specialized in loans to Inland Empire developers and home builders, running up $289.5 million in losses in the January-September period."The closing of these two thrifts once again demonstrates the tremendous impact of the housing market distress on the state of California," John Reich, director of the Office of Thrift Supervision, said in a statement announcing the seizure of the institutions.After seizing the banks, the agency handed them over to the Federal Deposit Insurance Corp., which immediately agreed to have U.S. Bank, a unit of US Bancorp, acquire virtually all their assets and assume all of their deposits.US Bancorp agreed to shoulder the first $1.6 billion in losses on the two thrifts' loans. The FDIC will be on the hook for losses after that, which it estimates will be $2.1 billion.Of the $3.7 billion in total estimated losses, $2.9 billion is on Downey's loans and $800 million is on PFF's.The FDIC said it entertained other offers for the two thrifts. But the agency determined US Bancorp's offer was the least costly to the federal deposit insurance fund, which is financed by premiums paid by banks and thrifts.US Bancorp, which has largely escaped the mortgage losses plaguing many banks, said acquiring Downey and PFF was part of its strategy of expanding in the West, particularly in California, where it recently completed the acquisition of Mellon Business Bank in downtown Los Angeles.Before the latest deals, U.S. Bank had 353 California branches, a modest number in contrast with the presence the bank maintains in downtown Los Angeles. Its name appears on the former Library Tower on Fifth Street, the highest U.S. skyscraper west of the Mississippi.The Downey and PFF branches brings U.S. Bank's California total to 561 branches, compared with more than 1,000 each for Bank of America Corp. and Wells Fargo & Co.The $2.1-billion loss brings the deposit insurance fund's losses on failed banks to about $15 billion this year, said Arlington, Va., bank consultant Bert Ely.Ely said that amount could have been far lower if regulators had stepped in earlier to force the operators of big thrifts like Washington Mutual Inc. and Downey to find a buyer or clean up their acts before their loan problems became so severe."It's really sad about Downey," Ely said. "It was a great institution with a great branch system and customer base, and it made it through all the bank troubles of the 1980s. In the end, it was just like WaMu. These problems are like a fresh-caught fish, not like a fine red wine -- they don't get better with age."Downey Financial Corp., parent of Downey Savings, was co-founded in 1957 by developer Maurice McAlister, a bass fisherman and nickelodeon collector who built shopping centers with Downey branches. McAlister remained chairman until July, when Downey's woes were already apparent.PFF was the oldest banking outfit based in Southern California, founded in Pomona in 1892 to serve towns in what was then the citrus belt. Parent PFF Bancorp Inc., based in Rancho Cucamonga, had hoped to sell itself to Oak Park, Ill.-based FBOP Corp., which owns California National Bank and other community banks.The seizures are likely to make permanent the disappearance of the stock market value of Downey Financial and PFF Bancorp. Since the end of 2006, when the mortgage meltdown began, Downey's shares have lost 99% of their value. PFF's stock is down 99.8%.Regulators allowed Downey and PFF to complete their business Friday before stepping in.At Downey's headquarters, a group of 10 FDIC and US Bancorp officials strode into the lobby of pink granite and marble at 6:06 p.m. and took the elevator to the fifth-floor executive offices to begin the transition to new ownership.Downey and PFF were the 21st and 22nd FDIC-insured institutions to fail this year. No. 20, a bank in Georgia, was seized earlier Friday.Other collapses this year have included Pasadena's IndyMac Bank, the largest Southern California S&L, whose failure in July is expected to cost the deposit insurance fund $8.7 billion. The FDIC is operating IndyMac while seeking a buyer for it.US Bancorp said it would modify home loans for struggling Downey borrowers using as a model an aggressive program the FDIC has adopted at IndyMac.Downey and PFF's customers are better off than some of IndyMac's because all of their deposits were assumed by U.S. Bank. IndyMac customers whose accounts weren't fully insured haven't gotten, and may never get, access to all of their money.Before the announcement, Tim Stevenson, 54, a retired construction contractor who was getting money from an ATM at Downey's Burbank branch, said he had considered moving his more than $80,000 at Downey to another bank."I heard they were hurting, but what's happening to their stock is not something I wanted to hear," Stevenson said. "I thought they'd cranked things back up."Joe Schweitzer, 69, a retired teacher and a longtime Downey customer in Sherman Oaks, said Friday afternoon that he had known the thrift was at risk of failing."I heard that their stock was below $1, that they had bad loans and that the government wasn't going to help them," he said. "But as long as my money's insured, I'm not scared."Still, when a certificate of deposit matured two weeks ago, he and his wife transferred the money to Citibank.Schweitzer said he was frustrated to learn that Citibank's parent company, Citigroup Inc., had its own problems. Its stock plunged 60% this week."We moved the CD to Citibank, and now look at where they are in the stock market," he said. "They're where everyone's money is going to, but they're also in terrible shape. It's like jumping from one hot potato to another."Some Southern California banks whose stock prices have cratered continue to operate.Temecula Valley Bank Chairman Stephen H. Wacknitz said Friday that Temecula was not in as dire a situation as PFF, Downey or Vineyard Bancorp in Corona. All four banks have seen their stocks punished by investors worried about the banks' loan troubles.Wacknitz said Temecula had stopped its high-risk lending on speculative buildings seven or eight months ago."You show me a bank whose stock hasn't gone down," he said. "Look at Citigroup."Washington PostRushed RegulationsAgencies ignore a White House deadline on rule changes...Editorial...11-21-08http://www.washingtonpost.com/wp-dyn/content/article/2008/11/21/AR2008112103211_pf.htmlACKNOWLEDGING "the historical tendency of administrations to increase regulatory activity in their final months," White House Chief of Staff Joshua B. Bolten issued a directive to federal agencies in May to release any final regulations before Nov. 1. The administration billed this as a bit of "good government." We would agree, were it not for new rules with broad implications that continue to churn their way to adoption long after Mr. Bolten's deadline.The Interior Department wants to revise the application of the Endangered Species Act. The Environmental Protection Agency wants to do the same with the Clean Air Act. If what's being proposed goes through, air quality in and around national parks, and threatened plant and animal species, would be imperiled. President-elect Barack Obama might be saddled with policies that run counter to his environmental vision.Interior's action on the Endangered Species Act was the result of listing the polar bear in May as "threatened" under that law because of climate change. The statute was never intended to regulate the greenhouse gases that are warming the planet and melting the Arctic ice habitat of polar bears. So Interior Secretary Dirk Kempthorne proposed stripping the Fish and Wildlife Service, the National Marine Fisheries Service and other agencies of their roles in consulting with federal departments on building projects that are "likely to adversely affect" a listed species. The rationale that their experience complying with the Endangered Species Act gives agencies enough expertise to determine for themselves whether a project is likely to harm a species, not just polar bears, is flawed. Without those protective services in the consultative loop, there will be no check against the ambitions of agencies that want to complete projects -- and no safeguard for threatened and endangered species in the agencies' path.Over at the EPA, construction of coal-fired power plants and other polluting facilities would be allowed near national parks and wilderness areas under a revised method of measuring air quality, according to documents obtained by Post writer Juliet Eilperin. This most certainly could lead to more plants spewing more pollutants, clouding the air and degrading the parks. Ms. Eilperin also reported that there is vigorous resistance among EPA regional administrators to this change.Which brings us back to Mr. Bolten. In his May directive, Mr. Bolten noted that exceptions would be made to the Nov. 1 deadline in "extraordinary circumstances," which were not defined. Given that neither the EPA's nor the Interior Department's rule change is needed for the continued functioning of the republic for the next 60 days, Mr. Bolten should hold true to his good-government instincts and order the EPA and Interior to stand down.Citi Works to Assure InvestorsAfter Stock Battered, A Show of Resilience...Binyamin Appelbaumhttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/21/AR2008112100529_pf.htmlA defiant Citigroup proclaimed itself in good health yesterday even as its stock price completed a one-week, 60 percent swan dive, highlighting renewed investor concern about the long-term prospects of the nation's largest banks.Lenders are facing massive losses across a wide range of businesses as the economy unravels at a quickening pace, and investors have concluded that some of the largest banks, including Citigroup, will need to raise more money.Some investors also appear to be betting that the Bush administration is out of time, tools and willpower to save another bank. Simon Johnson, former chief economist at the International Monetary Fund, compared the market movement to an attempt by speculators to collapse a foreign currency by betting that the government won't invest enough money to reverse the decline."The market is testing Mr. Paulson," said Johnson, now a professor of entrepreneurship at the Massachusetts Institute of Technology. "They basically have $60 billion left to last them two months, and now they have to deal with some increasingly serious problems."Citigroup's executives launched a fierce campaign yesterday to convince investors and analysts, government officials, and even their own employees that the company is in a strong position to weather the economic crisis. Chief executive Vikram Pandit accused investors of "fear-mongering," according to a person who heard him speak on a conference call with employees yesterday.Federal regulators are watching the situation and are in contact with the company's executives but are not taking an active role, believing that Citigroup is in much stronger financial condition than banks that have recently collapsed, people familiar with the matter said. The government remains committed to preventing the collapse of any large financial institution, those sources said, speaking on condition of anonymity because they are not authorized to speak publicly.Citigroup's board met yesterday to discuss options, including the sale of business units, according to people familiar with the situation. Pandit has said that he strongly opposes the sale of core units such as the Smith Barney brokerage.Citigroup is also pushing the Securities and Exchange Commission to suspend short-selling, the practice of betting on a decline in a company's stock price, which can create its own momentum as investors drive down prices, according to industry and government sources. The company has the support of leading industry trade groups, but two industry sources who had been in contact with the SEC about the matter said regulators are disinclined to comply.The SEC banned short-selling on hundreds of financial stocks for several weeks earlier this fall. But the agency concluded the initial effort was counterproductive, because it led some large investors to sell all their holdings and leave the market, undermining the stated purpose of shoring up stock prices.Investors dropped Citigroup's stock to $3.77 a share in trading yesterday on the New York Stock Exchange, the lowest price since 1992. Bank of America fell to $11.47, its lowest share price since 1995. J.P. Morgan Chase fell to $22.72, its lowest price since 2002.Citigroup's stock price has little direct, short-term impact on the company. The concern, however, is that Citigroup's customers and business partners will accept the stock market's judgment about the company's health and will begin to withdraw and withhold money from the bank. A similar process has driven other banks to the point of collapse, including Washington Mutual, Wachovia and National City.The declining stock price also limits the company's ability to raise money by issuing shares, or to buy other companies using shares. Citigroup had discussed buying Chevy Chase Bank of Bethesda but no longer appears able to close the deal, according to people familiar with the situation.Citigroup, however, is confronting its difficulties with the support of several new government programs specifically designed to help banks.The Federal Deposit Insurance Corp. finalized a program yesterday that makes it easier for banks to borrow money from investors or other banks by guaranteeing that debt against loss. The Federal Reserve is lending unprecedented sums to banks that cannot raise money from investors. And the Treasury Department already has invested $25 billion in Citigroup and could decide to raise its stake.Indeed, Citigroup now has about $50 billion in capital above the amount that regulators require the bank to hold against future losses. The bank has whittled down its holding of mortgage-related investments, and it has stayed on the sidelines while rivals Bank of America and J.P. Morgan Chase both bought large mortgage lenders, taking on huge numbers of loans that are likely to fail."It would take a depression every bit as large and long as the 1930s debacle to shake this company's viability," wrote Richard Bove, a banking analyst with Ladenburg Thalmann, in a research note to clients. "I would be a buyer of this stock."But other analysts noted greater concern about the company's massive holdings of other kinds of consumer loans. Citigroup is one of the world's largest credit card lenders, and delinquency rates on credit-card loans are projected by banking analysts to reach record heights next year. The bank also is a leading lender to consumers in developing markets around the world, where economic struggles could outpace problems in the United States."They have a huge book of consumer loans and securities that nobody knows what they're worth," said Keith Davis, an analyst with Farr, Miler & Washington. "They're going to have to continue taking losses, and is there really enough (capital) to support that? The answer is probably no."Citigroup issued a statement that said the company "has a very strong capital and liquidity position and a unique global franchise. We are focused on executing our strategy, including our targeted expense and legacy asset reductions, and we believe the benefits will be seen over time."The company has placed ads affirming its health in a number of U.S. and international Sunday newspapers.Staff writer David Cho contributed to this report.New York TimesShares Falling, Citigroup Talks to Government...Andrew Ross Sorkin and Louise Story http://www.nytimes.com/2008/11/22/business/22citi.html?_r=1&ref=business&pagewanted=printWith the sharp stock-market decline for Citigroup rapidly becoming a full-blown crisis of confidence, the company’s executives on Friday entered into talks with federal officials about how to stabilize the struggling financial giant. In a series of tense meetings and telephone calls, the executives and officials weighed several options, including whether to replace Citigroup’s chief executive, Vikram S. Pandit, or sell all or part of the company. Other options discussed included a public endorsement from the government or a new financial lifeline, people involved in the talks said.The course of action, however, remained uncertain on Friday night, these people said, and other options may yet emerge. But after a year of gaping losses and an accelerating decline in share price, Citigroup, which has $2 trillion in assets and operations in scores of countries, is running out of time, analysts said.After a board meeting early Friday morning, Citigroup’s management and some board members held several calls with Henry M. Paulson Jr., the Treasury secretary, and with the president of the Federal Reserve Bank of New York, Timothy F. Geithner, who later emerged as President-elect Barack Obama’s choice to be Treasury secretary.As Citigroup’s stock sank during the day, falling 68 cents to close at $3.87, the Federal Reserve was carefully monitoring how much money corporations and other customers were withdrawing from the bank, people involved in the discussions said. The Fed was trying to ascertain whether the tumult in the stock market could escalate into something worse. So far, these people said, most customers and clients remained committed to Citigroup.But with Citigroup’s troubles opening a new chapter in the long-running financial crisis, government officials said that the Treasury Department was considering whether to ask for the second half of the $700 billion rescue fund approved by Congress in September. It was unclear whether any of that money would be used to make a cash infusion into Citigroup, which received $25 billion from the government in October. A second financial rescue for banks might be difficult politically at a time that the struggling auto industry is being turned away in Washington. As Citigroup’s fortunes diminished on Friday, Mr. Pandit, the company’s embattled chief executive, went on the offensive. He worked the phones and held a companywide call to shore up the confidence of anxious employees. Later in the day, the company held a similar call with large corporate customers. On Sunday, Citigroup plans to run full-page advertisements in major newspapers that acknowledge “our financial markets have been tested in unprecedented ways,” but argue that the company has a broad range of businesses and enough management expertise to pull through. In a nod to the company’s slogan, the text concludes: “That’s why now, more than ever, you can feel confident that Citi never sleeps.”Still, Citigroup’s executives are not expected to sleep much this weekend as they continue to pursue contingency plans, including what they might need to calm anxious investors before the stock market opens on Monday morning. One maneuver that Mr. Pandit has championed is for the Securities and Exchange Commission to reinstate the “uptick rule,” which prevents short-sellers from betting against companies whose stock price is falling. Mr. Pandit has been lobbying the S.E.C. for the past week, as have other Wall Street chiefs. Mr. Pandit and others have suggested that Citigroup is a victim of short-sellers, which some have blamed for speeding the demise of other financial companies this year. In September, Richard X. Bove, an analyst at Ladenburg Thalmann, predicted that short-sellers would turn their attention to larger and larger financial companies, including Citigroup, which he said at the time was strong enough to withstand the pressure. “They’re going to hit a company that is too well grounded, too well capitalized, and I think that will be Citigroup,” he said. Still, while Citigroup is widely regarded as too big and too interconnected to be allowed to fail, its immediate future is uncertain. Executives at other financial firms said that there are not many options left, and that Citigroup’s stock has reached a level that may force government action. “The reason you have to ‘save’ Citibank is you cannot allow this hysteria,” said Peter J. Solomon, chairman of the Peter J. Solomon Company, a small investment bank.Investors and executives at other banks said that one way the bank might be able to give itself some breathing room would be for Mr. Pandit, who became chief executive less than a year ago, to step down. Executives in New York have also begun pointing out that Citigroup has a huge global presence. They suggested that perhaps a government bailout should involve money from other countries in addition to the United States.“If there’s a flight from Citi’s stock, that’s unfortunate, but I don’t think that’s the government’s business,” said David M. Walker, the president of the Peter G. Peterson Foundation and a former United States comptroller general.Mr. Walker said that the government should be concerned about Citigroup only if there were a run on the bank that threatened the financial system. The government should not, he said, be concerned about shareholders. Some executives, however, argued that it was important to protect Citigroup’s shareholders because if they lose their investment, that will send other bank stocks diving.Among the other ideas being bandied about Washington and the halls of Citigroup would be an assisted merger between Citigroup and another major bank. The merger might be structured with government assistance based on the blueprint that was developed for the Wachovia and Citigroup merger. That deal ultimately did not go through because Wells Fargo stepped in with a higher offer, but it would have involved the Federal Deposit Insurance Corporation sharing the losses on $312 billion of Wachovia’s loans with Citigroup. Citigroup would have absorbed the first $42 billion in losses, and the government would have absorbed the rest. The F.D.I.C. would have been given $12 billion in warrants and preferred shares of Citigroup in exchange.That structure could be used in a merger, but this time around, the government would be absorbing losses on Citigroup’s loans. But it remains unclear what other bank is in a strong enough position to merge with Citigroup.Inside Citigroup on Friday, some angry senior executives said that the government had “allowed” Wells Fargo to take Wachovia from them, people at the firm said. They argued that had Citigroup and Wachovia been allowed to merge “we wouldn’t be in this position,” one executive said. Another option might be for the government to purchase a large chunk of Citigroup’s assets in one swoop. Such an action could be structured similarly to the proposed deal in Switzerland for UBS. A spokesman for UBS, Mark Arena, said on Friday that the arrangement would allow UBS to have “one of the cleanest balance sheets of our peers.” At the time of the deal’s announcement in October, Jean-Pierre Roth, president of the Swiss National Bank, said the government had the time to wait for the values of the assets to improve. “UBS does not have time,” Mr. Roth said.Woes at Citigroup Began With Failed Bid for Wachovia...BEN WHITE and Vikas Bajajhttp://www.nytimes.com/2008/11/22/business/22bank.html?ref=business&pagewanted=printLess than two months ago, Citigroup emerged from the wreckage of the financial crisis as one of the last titans left standing on Wall Street. Now, in a stunning turnabout, the banking giant has sunk to its knees after a series of blows that have driven its stock price to a mere $3.77 on Friday — and left it running short on time and options. In the decade since Citigroup was born from the merger of Citicorp and Travelers Group, it weathered many storms that threatened to pull it apart. But the current turmoil can be traced back to the last weekend of September, when it sought to reassert itself by swallowing Wachovia, the stricken bank based in Charlotte, N.C., whose vast deposit base would have turned Citi into one of America’s dominant lenders.As the global financial crisis drove Wachovia toward collapse, the government frantically engineered their marriage. At a bargain price of $1 a share, Vikram S. Pandit, Citigroup’s chief executive, was happy to oblige: The deal would have greatly enhanced Citi’s retail banking presence and added more stable consumer deposits to a balance sheet staggered by billions in write-downs on bad mortgage loans and related securities. But like so many other things for Citigroup over the last several years, it fell apart. Less than a week later, Wells Fargo, the powerful San Francisco-based bank, swooped in with a higher offer. Citi was left in the lurch, without a business that was vital to its future. That collapse began a steady decline in Citigroup shares that snowballed this week as speculation grew that the bank might require a government bailout, a forced merger that would crush common equity holders, or an ouster of Mr. Pandit.In the last five days alone, more than half of Citigroup’s market value was vaporized, and investors and analysts intensified calls for the bank to find ways to lift its stock price, including splitting the company, selling pieces or selling itself outright. “They don’t have the sovereign wealth funds or other big investors to turn to anymore,” said William Fitzpatrick, an equity analyst for Optique Capital Management. “There are two remaining options: a federally forced merger or nationalization.” The bank has fought back vigorously with assertions that its capital position is strong. It announced plans Monday to cut costs and slash 52,000 jobs. On Thursday, Saudi Prince Walid bin Talal, Citi’s biggest individual shareholder, said he would increase his stake in the bank to 5 percent from 4 percent. But none of that has appeased investors, some of whom believe Citigroup must raise $20 billion or more in new capital to offset expected losses — and may have trouble doing so.To some extent, Citigroup’s fortunes have declined as the storm in the broader financial industry has grown angrier. Many analysts argue that the globe-spanning conglomerate, largely built by Sanford I. Weill, had never really worked as a cohesive unit. Different divisions have consistently battled, and promised synergies between units have rarely emerged. “They never spent the time, the money or the energy to integrate all of the businesses,” said Meredith Whitney, analyst at Oppenheimer. “And so the credit card business speaks Mandarin while the mortgage business speaks Cantonese. It’s not a functional family. And because it’s not a functional family, it’s extraordinarily expensive to operate all the separate businesses, and you don’t get any of the advantages.”Many of these problems were masked during the credit boom this decade. But with the financial crisis in full swing, the bank’s failure to unite its empire has become more exposed than ever. “A lot of the issues facing Citigroup are not new issues, they have simply grown greater in severity,” said Michael Mayo, an analyst at Deutsche Bank. These strains intensified significantly in recent days, when a near three-week grace period in financial markets came to an abrupt halt. Credit markets had begun to thaw as a $700 billion bailout for the financial industry took effect, and the United States presidential elections breathed a temporary euphoria into markets worldwide. But financial stocks came under renewed assault last week after Treasury Secretary Henry M. Paulson Jr. said the agency was abandoning its plan to buy troubled assets from banks — including the likes of Citigroup. While the program was not a panacea for the banking industry’s ills, investors had been expecting the government to absorb vast amounts of troubled assets from bank balance sheets, putting the companies on the path toward financial health. The price of these securities had seen a nascent recovery in late October and early November as investors awaited more details about the plan. Policy makers had suggested the government would have paid higher prices for the securities than they could fetch on the open market, something that would have helped reduce the financial pressure on Citigroup.Allen L. Sinai, president of Decision Economics in New York, said that while the original plan to buy assets was poorly conceived, the decision to scrap it severely damaged banks like Citigroup that were holding billions of dollars of mortgage-related assets.Now “those balance sheets will continue to contract as long as housing prices continue to go down,” said Mr. Sinai. “What the flip-flopping has done is put another nail in some of our financial institutions.”Investors pounded financial shares further as continued dire news about consumers and unemployment made clear that banks will face larger losses on consumer loans, as well as the prospect of billions more in mortgage-related write-downs. While financial shares fell across the board, Citigroup, with its large costs and troubled holdings, quickly became viewed as the most vulnerable, spurring huge sell-offs that worsened as hedge funds bet on a decline in its stock. Then, on Tuesday, a report about imminent defaults on two large commercial mortgages sent the price of bonds backed by those loans tumbling. The first $209 million loan was backed by two Westin hotels in Arizona and Hilton Head, S.C., and the second was a $125 million loan backed a shopping complex in Southern California.These problems renewed fears that a vast wave of damaged commercial loans would course through banks — including Citigroup — already hit by a tsunami of toxic mortgage products.CNN MoneyThree banks in California, Georgia failRegulators close down two California thrifts and Community Bank of Loganville, Ga., raising the toll in the financial crisis to 22 banks...Catherine Cliffordhttp://money.cnn.com/2008/11/21/news/companies/bank_failure/index.htm?postversion=2008112123NEW YORK (CNNMoney.com) -- Three more banks - two in California and one in Georgia - failed Friday, bringing to 22 the number of institutions forced to close in the wake of the financial crisis.The Federal Deposit Insurance Corp. said the banking operations of Downey Savings and Loan Association of Newport Beach, Calif., and PFF Bank & Trust of Downey, Calif., were acquired by U.S. Bank (USB, Fortune 500) of Minneapolis.The two banks, which will reopen as U.S. Bank beginning Saturday, have a total of 213 branches and 2,900 employees, according to the Office of Thrift Supervision (OTS), the banks' regulator.As of Sept. 30, Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion. PFF Bank had total assets of $3.7 billion and total deposits of $2.4 billion. Both banks have been hit hard by the mortgage meltdown, according to the OTS."The closing of these two thrifts once again demonstrates the tremendous impact of the housing market distress on the state of California," said OTS director John Reich in a statement.Under terms of the FDIC-arranged deal, U.S. Bank will assume the first $1.6 billion of the combined banks' asset losses, with the FDIC sharing in any further losses. The FDIC said U.S. Bank will implement a loan modification program similar to the one announced in August for IndyMac Bank of Pasadena, Calif., which was seized by the federal agency the previous month.The agency said both Downey and PFF customers should continue existing branches until U.S. Bank can fully integrate the deposit records of the organizations. Depositors will have full weekend access to their money by writing checks or using ATM or debit cards.Earlier, Loganville, Ga.- based Community Bank was shuttered by the Georgia Department of Banking and Finance. The FDIC took over the assets and Tappahannock, Va.-based Bank of Essex will assume all Community Bank's deposits. Community Bank had total assets of $681 million and total deposits of $611.4 million as of mid-October. Bank of Essex purchased $84.4 million of the failed bank's assets and paid the FDIC $3.2 million for the right to take over the failed bank's deposits. The FDIC will hold onto the remaining assets to disperse at a later time.The Community Bank has four branches, which will all open Monday as the Bank of Essex. Through the weekend, customers of the failed bank will be able to access their funds by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed and loan customers should continue to make their payments as usual.The FDIC said that the cost of the acquisition would be between $200 million and $240 million, but as with other bank failures, the transaction was the least expensive resolution.With Friday's failures, five California banks and three Georgia banks have been among the 22 forced to shut down in the current crisis.A bigger pool of bailout buyersOn Friday, the Office of the Comptroller of the Currency (OCC) broadened "the pool of potential buyers available to buy troubled institutions" by allowing groups of private investors, and not just other banks, to take over failed institutions.Several investors, led by Hilltop Holdings Inc., became the first group to qualify under the new "shelf charter" by agreeing Friday to take over Ford Group Bank, a Texas regional firm. However, the OCC approval is still preliminary and final authorization will only come after all requirements are met within 18 months.Banks have been struggling to keep afloat as choked borrowers have been unable to pay their loans back, especially mortgage payments. The $700 billion bailout, signed into law in early October, was supposed to be used for buying up toxic mortgage debt from struggling financial institutions to free up lending. But last week, Treasury Secretary Henry Paulson said the funds would now be used for injecting capital directly into the banks.Banks have also been criticized for not using the bailout cash to increase lending to consumers and businesses.Banks and lawmakers went head to head over that very issue last week. Lawmakers say that banks need to use the funds to make credit more available to consumers and borrowers. Banks, however, said they were doing what they could to increase lending and to work with delinquent homeowners.Bank bailout scorecardThe Treasury department has been dolling out capital to qualified banks. Monday, the government dispersed $33.56 billion to 21 banks in a second round of payments. The government previously distributed $125 billion to nine banks in the form of stock purchase programs.Time CNNWill Citigroup Survive? Four Possible Scenarios...Stephen Gandelhttp://www.time.com/time/printout/0,8816,1861332,00.htmlCitigroup may soon get all the sleep it needs. Investors are growing increasingly concerned that the global financial behemoth could go the way of Bear Stearns, Lehman Brothers and Merrill Lynch. Shares of the company, which was once the world's largest bank, closed at $3.77 on Friday. The company's board members reportedly met on Friday and will continue to talk over the weekend to discuss the firm's options. There are a number of possible outcomes, not all of which conclude with the end of Citi. "Somehow they need to get the price of their stock up," says James Ellman, a hedge fund manager at Seacliff Capital. "If they don't they are in for a lot of big problems." Here are the most likely scenarios, in no particular order, that could unfold for Citigroup and its shareholders in the next few days. 1. A Change in ManagementMost analysts believe Citigroup can survive its current market woes, though probably not without some changes. In a report out on Friday, Deutsche Bank analyst Mike Mayo, who has been a long-time bear on Citi, says the company has adequate capital to survive. When you factor in the $25 billion Citi got from the Treasury's Troubled Asset Relief Program, Mayo estimates the bank has as much as $100 billion in cash cushion. And Citi's lending business has actually performed relatively well in this environment. In the third quarter, the company said it had $5 billion in loans on which customers were no longer making payments. In all, Citigroup has set aside $24 billion for loan loss reserves. For most firms, that's a lot of IOUs to go bad. But for Citi it's peanuts. In fact, $24 billion is just under 3.5% of Citi's overall loan book of $718 billion. And that's not a bad charge-off rate during a time when sub-prime mortgage loans are defaulting in double-digit rates. "The issue with Citi is the degree to which the downtrend in its stock price affects fundamental factors, as seen with other financial firms over the past few months," Mayo wrote in the report. So to avoid the fate of Lehman or Bear, the firm's board may feel like it needs to do something to boost it's stock price. One option would be to boot chief executive Vikram Pandit. Some on Wall Street believe Pandit has not been quick enough to react to the problems of the firm and could still be in denial. On Friday, Pandit told top executives that he doesn't believe Citi needs to sell off parts of its business to raise capital. Investors don't seem to agree. The stock fell on the news. Who could replace Pandit? Robert Rubin, the former Treasury Secretary and head of Goldman Sachs, could be one choice. He is currently a director and senior council at the firm. But Rubin has been at Citigroup for a number of years, and it's not clear he has been helpful so far in stopping the losses. What's more, with a Democrat headed back to the White House his eye may be on Pennsylvania Ave. and not Park Ave., where Citi's executive offices are located. Another choice could be Larry Fink, the head of money management firm BlackRock. He is regularly on the top of short lists anytime a big Wall Street job opens up. And so far, he has kept his firm clear of the worst parts of the financial meltdown.  2. File for BankruptcyFor months, Citigroup has been dogged by concerns about the quality of the loans on its books. Citi was, after all, one of the nation's largest sub-prime lenders, not just to homebuyers but through its credit card division as well. This week, the fears have centered on the quality of its corporate loans, and to a lesser extent its credit card business. "If they had to mark all of their loans down to what they would be worth, there would be no equity left in the company," says Ellman. Here's the math: Citigroup has, as Mayo said, about a $100 billion equity cushion, which could be wiped out if loans go bad. At the end of the third quarter, Citigroup had $17 billion in commercial mortgage bonds. According to Barclays Capital, the average CMB price has fallen 34% since the beginning of October. So erase $5.8 billion in equity right there. Citigroup was also a player in advising private equity companies on leveraged buyouts. As part of that business it lent money to the companies in such transactions. Now many of those deals look over-leveraged and ready to default. Those bonds are off 19% since the end of September. Citigroup holds $23 billion in leverage loans. So mark down that stake by $4.4 billion. In addition, Citigroup holds $172 billion in loans to corporations. In general, corporate bonds have not fallen a lot because there have not been many defaults. The aggregate Barclays corporate bond index is down 3%. Still, because of the size of Citigroup's loan book, wave goodbye to another $5 billion. You may have read about Citigroup's Special Investment Vehicles. Through SIVs and other structures Citigroup has kept some of its loan liabilities off its balance sheet. On Wednesday, Citigroup said it would repurchase the last of those SIV assets for $17 billion. But Citigroup still has a remarkable $130 billion in unfunded off-balance-sheet liabilities. Not all of that will go bad. But conditions don't look good for the $2.5 billion in obligations to off-balance-sheet collateralized debt obligations, or to a lesser extent the $63 billion it has in asset-backed debt. All of these potential losses are based on the value that Citi is putting on its loans. And Citi has no obligation to write down all of the loans on its books. In fact, it recently said that it was going to stop taking so-called mark-to-market losses on an additional $80 billion in assets of its loan portfolio. So even if the value of its loans continues to fall, it may not have to take a hit to its equity. And as long as most of Citi's borrowers keep paying, as most are, Citi will be just fine. That's why most analysts see the possibility of the bank going bankrupt as out of the question. But if Citi has not been marking its loans down to market value aggressively enough, the losses on its balance sheet could be even greater, which could be the case. "Though difficult to draw hard conclusions from comparisons between banks, Citi's marks appear less aggressive than J.P. Morgan's," wrote analyst John McDonald of Sanford C. Bernstein in a research report last week. All told, McDonald thinks that Citigroup has $88 billion in risky assets. That's not quite $100 billio,n but it is close. And that's what has the Citi-doomsday-folk yapping. 3. Citi Gets Sold A sale of Citigroup used to be unthinkable. But at $20 billion in market capitalization, Citigroup has become a more digestible acquisition. Still, a number of the financial firms that would be interested are either hurting on their own and could not afford to add Citi's troubled loans to its books, or have just completed another acquisition. So cross Morgan Stanley, J.P. Morgan and Wells Fargo off the list. Goldman Sachs is one possible suitor. Its market capitalization of $21 billion is now slightly larger than Citigroup's. And at $53 a share, investors don't seem to be too worried about Goldman going under, yet. So Goldman could use its shares to finance an acquisition. What's more, Goldman might like to get its hands on Citi's $780 billion in bank deposits and 200 million customers. Goldman recently converted to a bank holding company and plans to start attracting bank deposits on its own. But opening up branches is costly. Buying Citi, even with its troubled assets, could be cheaper way for Goldman to expand. Another possible suitor could be US Bancorp. The Minneapolis bank is one of the nation's largest, but it has little presence on the East Coast, where Citi is big player. U.S. Bancorp has a market cap of $40 billion, about double the size of Citigroup. What's more, U.S. Bancorp chief financial officer Andrew Cecere recently told the Wall Street Journal said that the firm was interested in making a large acquisition. 4. Uncle Sam to the Rescue, AgainAfter the mess that followed Lehman Brothers, regulators have no interest in seeing another big financial player go belly up. And now the government has a vested interested in not letting that happen. In October the government, as part of the TARP program, invested $25 billion in Citigroup. Treasury Secretary Henry Paulson has said he will do everything to protect that and other taxpayer investments. Paulson agreed to invest more money in AIG to keep that insurance company alive. So there is reason to believe he would do it again with Citi. There are a number of things the government can do to help Citigroup stay afloat. Perhaps the lowest cost solution would be for the government to guarantee some or all of Citi's debts. That would entail no initial outlay of funds. And with many analysts saying that Citi's books are fundamentally sound, this could be the way to go. With a guarantee Citi would not be forced to sell its assets at a discount, if any of the bank's creditors or trading partners want their money back. That would save Citi from having to write down its assets, which is what would wipe out its equity and send it into bankruptcy. Of course, if the bank does fail, the government could be on the hook for hundreds of billions of dollars of debt. Another option could put more money into the firm from the TARP program. The problem with that plan is Citigroup may need more money than the Treasury could inject into the firm. Paulson only has $60 billion left of the initial $350 in TARP funds that he can spent without having to face a review from Congress. More importantly, the government does not want to end up owning Citigroup. Then taxpayers would be on the hook for all of the bank's debt. So the most the government could invest in Citigroup would be $20 billion, which is the amount equal to what is held by current shareholders. If Citigroup were to issue shares to the government greater than its current value, taxpayers would be left with a more than 50% stake in the company. Lastly, the government could make some regulatory changes and hope for the best. First of all, get rid of mark-to-market accounting. Some observers say it doesn't make sense for loans that are performing, and the banks have no intention of selling anyway. Next, the government could suspend trading in the credit default swaps on Citigroup's debt. The price of those contracts, which pay out if Citi goes bankrupt, have been rising recently, and that is spooking the stock investors. Without that constant reminder of the increasing chance of Citi going out of business, some observers say the stock would rise. "You break the negative feedback loop," says Seacliff's James Ellman. Citi has already asked the government to restrict short-selling (where investors borrow stock in hopes that the price will fall) in its shares. Executives hope that getting rid of the people rooting for the firm's demise could relieve some pressure on the company's shares. What's more, to close their positions, short sellers would have to buy the shares they borrowed. Again, the stock would probably rally. But the question is, for how long? And none of these moves address the problem that is really holding down Citi's shares. The bank has bad loans, and no one, probably not even the executives at Citi, know just how bad they are.