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Wednesday, November 7, 2007

Financials Have a Long Road to Recovery

November 6 2007
With the abrupt weekend resignation of Citigroup Chief Chuck Prince and Citi's announcement of as much as $11 billion in charges, it's clear that the collateral damage from the subprime meltdown isn't confined to Merrill Lynch. It's coursing through the financial system and has reached the world's biggest banks. Where will it stop? This is an unusually weighty question, and not just for stock investors looking for what may be bargains in the now beaten-down financial sector. When institutions of both the size and reputation of Merrill Lynch and Citigroup — both household names and revered brand names throughout the world — are shaken to their foundations, the global economy feels the tremors. The bankruptcy of a Citigroup seems unthinkable. Yet that hasn't stopped investors from at least mulling over the prospect while driving shares to their lowest levels in years. The stock was at $48 as recently as Oct. 11; this week it was nearing $35. It hasn't helped that the U.S.-government-endorsed bailout fund for troubled Structured Investment Vehicles was widely interpreted as a thinly-disguised rescue fund for Citi itself.

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