Citi rescue boosts share price 60% in a day

.Just a few weeks ago, Citi was seemingly the bank that the US didn't need to rescue. It was the preferred bidder for a major failed bank - Wachovia - on terms that on insider described to us as "we are getting it for nothing."

Then Wells Fargo spoiled the party and made a bid, which Citi first fought, then conceded.

This is, remember, the same Citi that regulators told it would not be allowed to do any more takeovers until its regulatory affairs were in order after the scandal in its Japanese Private Banking unit forced it to close that operation in i gnominy.

When Wachovia collapsed just seven weeks ago, Citi was assumed to be solid.

But yesterday, the US Treasury acceded to Citi's pleas and agreed to underwrite more than USD300 milliard in high risk assets and to inject USD20 milliard in cash in return for preference shares.

That raised Citi's shares by almost 60% - still far short of their price at the beginning of the year.

But it has raised another spectre - that Wells Fargo, which is very unlikely to have yet uncovered the full extent of its risk with Wachovia, the most aggressive mortgage lender in the US, putting even Countrywide into the shade. Word is that Citi stood back and let Wells Fargo have Wachovia because examination of the books indicated stuff that Citi decided was more trouble than it was worth.

The Citi deal, which makes one wonder if the City logo is an umbrella or a parachute, is a done deal and it is claimed that it will rescue the bank from insolvency. But in addition to Wells Fargo, questions are now being raised about the viability of Citizens and even the mighty Bank of America.

B of A has potentially holed itself below the waterline. It bought Countrywide - which was widely seen as a sink for bad lending decisions and Merrill Lynch, in need of rescue as its brokerage business could not meet calls.

A bost in Citi shares helped the US market - but there was also some reflected glory from London and Frankfurt which both rose. But Asian markets had closed before those markets started to rise. This morning, some Asian markets have shown initial upticks, but only to a very small degree indicating that neither the Citi rescue nor the UK Treasury's statement yesterday stands up to overnight scrutiny.