Is The “Franchise Value” Of Citi Worth Anything?


Jeff Matthews joins the chorus arguing that we need to stop with the half-measures and seize Citi. In a piece he calls “Zombie Banks Must Die” he directly takes on the notion that there’s some kind of mystical “franchise value” that needs to be conserved at Citi.

Here’s Matthews:

Bernanke’s concern that the “franchise value” of the Balkan Empire that is CitiSmorgasbord would somehow be lost seems to us the figment of a fevered imagination clouded by too many white papers.

So why not get it over with already? Wipe out the shareholders whose job it was to hire managers to run the business effectively, and preserve for the taxpayers whatever potential upside might come as owner, rather than merely absorbing all the downside as lender-of-last-resort.

Knowing the U.S. Government backing is not only implied but tangible, depositors would feel better about their deposits and creditors would feel better about their credits.

And Bernanke’s argument that “the counterparties and others don’t want to deal with you because they don’t know your future,” would evaporate, because right now those counterparties don’t have a clue what Citigroup’s future is.

Nationalized, they would know that the floor was in, and credit default swaps would drop from the 460 level to whatever the U.S. default swap is running these days. Markets could focus on rebuilding—not on speculating about what-more-bad-news-might-happen-tomorrow.

The only “franchise value” worth protecting here is not that of CitiSmorgasbord or any of the other zombie banks roaming Wall Street: it is the franchise value of the United States of America. And the best way to stabilise the patient is to stop the hemorrhaging, and get the blood flowing to the rest of the body. And to do that, the zombies must die.