Asia breathes easier after US rescues Citigroup
By JEREMIAH MARQUEZ,AP Business Writer AP - 33 minutes ago
HONG KONG - Asia breathed a little easier after the U.S. government cast a lifeline to Citigroup Inc., averting what many believed would have been a catastrophe for the global financial system.
Yet shares of financial companies dropped across the region as the bailout, widely expected by investors given Citigroup's size and scope, highlighted persistent worries about the problems facing the banking sector.
Washington unveiled plans late Sunday to take a $20 billion stake in the banking giant and guarantee the hundreds of billions of dollars in risky debt it had gorged on, humbling yet another once-swaggering Wall Street icon.
Critics said the bailout creates a moral hazard that will eventually backfire because it effectively rewards the bank for taking unacceptable business risks.
"This challenges the existing rules in the industry and might affect the fairness of competition," said Yu Xiaoyi, chief researcher for Guangfa Securities, in the Chinese southern city of Guangzhou. "This should be a lesson for China's own banks about risk controls."
But many welcomed the deal as saving the global financial system, already stricken by the year-old credit crunch that originated from a mountain of toxic mortgages in the U.S., from further mayhem.
"If they didn't help, the damage would be beyond imagination," said Teck-Kin Suan, economist at United Overseas Bank in Singapore. "The scale is so much larger than Lehman Brothers," the storied Wall Street investment bank that filed for Chapter 11 bankruptcy protection in September after the U.S. government refused to rescue it.
The Citigroup rescue was designed to stem a crisis of confidence that deepened last week as the company's shares plunged 60 percent on worries about its financial health.
A sprawling firm with operations in more than 100 countries and over $2 trillion in assets, Citigroup is among the biggest players in the world's financial system.
Analysts said its failure would have wreaked havoc on global finance, seizing up still fragile lending markets and causing untold losses among institutions holding debt and financial products backed by the company.
"It would create chaos," said Winson Fong, managing director at SG Asset Management in Hong Kong, which oversees about $3 billion in equities in Asia. "Simply put, you couldn't borrow or lend for a while. This is a nightmare scenario."
Citigroup has operated in Asia-Pacific countries for more than a century, with its regional offices raking in revenues of $4.46 billion and net income of $695 million in the third quarter, according to information provided by the company.
Some regional banks hold debt or investments backed by Citigroup, though total amounts are unclear. Others not directly tied to Citigroup might have been vulnerable had counterparties exposed to the company started to wrack up losses as a result.
"We don't know exactly how much, but it's safe to say there is lots of exposure" to Citigroup in Asia, said Brian Hunsaker, analyst with Fox-Pitt Cochran Caronia in Hong Kong.
While Asian banks have much less exposure to the problematic, mortgage-backed securities than at many U.S. and European banks, investors still sold off their shares.
KB Financial Group Inc., the holding company for top South Korean lender Kookmin Bank, plummeted 11 percent. Australian banks such as Commonwealth Bank of Australia fell 2.4 percent. Hong Kong-listed HSBC Holdings lost 3 percent and China's Ping An Insurance Co. dropped 4.9 percent.
"It's pretty indiscriminate right now. People just want their money out of emerging markets," said Tai Hui, head of Southeast Asia economic research for Standard Chartered Bank in Singapore. "Asian banks have had challenging times because of the economy, but their financials seem to be in reasonably good shape."
AP Writer Alex Kennedy in Singapore and AP Business Writers Elaine Kurtenbach in Shanghai and Stephen Wright in Bangkok contributed to this report.
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