What a Disaster at Citi

Way back in September, I told you that Citigroup (C) was not long for this world. Well somehow the bank has muddled through, but I wouldn't go so far as to say I've been proved wrong.

This week Citi said losses in its consumer loan portfolio could rise between $1 billion and $2 billion each quarter from now through the first half of next year. The company also announced plans to cut an additional 50,000+ workers over the next year, with cuts from the troubled N.Y. banking giant set to top 75,000 in 2009. The company's stock has slumped more than 77% in the last year as a result of continued problems from toxic mortgages and risky investments.

Can you believe that this mess of a financial company almost wound up absorbing Wachovia about six weeks ago? What a disaster that would have been!

While the flurry of bank failures a few months back created the "crisis of confidence" that undercut just about every stock on Wall Street, it's uncertain what the failure of Citigroup would mean in the current market. Lending rates have eased to pre-Lehman Brothers levels, and investors seem like they have moved past the financial crisis and into the next phase of this economy where consumer spending is the top concern. A failure at Citi now could cause the credit freeze to return in a hurry.

I'll keep a close eye on Citigroup over the next few weeks, and keep you posted if I see anything of note. Another iconic American business worth watching is General Motors (GM), which could go belly-up by January without intervention. Check back here or in my blog for the latest updates.