Friday, December 18, 2009

IRS Comps Citi

In an IRS ruling this week, prior to the Citi Stock offering, Citi will be allowed to keep approximately $38 billion dollars in deferred losses when the government sells its shares.  In direct contradiction to a law passed earlier this year which reversed a ruling benefiting Wells Fargo and specifically restricted the ability of the IRS to make further changes in the Internal Revenue Code by ruling, the IRS ruling allows Citi to be exempt from the law which prohibits the use of past losses if a company changes hands in order to discourage profitable companies from buying unprofitable companies to avoid taxes.  This is lost money to the government when lower revenue is 56% of the current deficit.

The Citi stock offering subsequently failed miserably pricing in at $3.15 a share only after the underwriter stepped in and bought stock to keep the price from going below $3.  Consequently, the government did not sell part of their 34% holdings as planned, because their basis is $3.25.  Treasury will not sell any Citi stock now for at least 90 days.  The Bank of America stock offering was marginal, particularly given their determination to make no break from the way they have done business as evidenced by their refusal to consider a CEO successor from outside who would have made necessary changes.  Still, Citi's stock offering failure only reaffirms the true Zombie nature of their company.

Of course, Congress will investigate the IRS ruling, but the subcommittee is chaired by Rep. Kucinich who asks the hard questions but has no real respect from his lobbyist indebted fellow members of Congress.

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