No Sleep for Citi

The prospect of Uncle Sam nationalizing the country's most vulnerable banks is once again the big concern today, as the Wall Street Journal reveals that Citigroup is seeking more federal backing to cushion against the blow of further mortgage-related losses and to keep its flimsy share price from collapsing. According to the WSJ, the ongoing discussions mean "the government could wind up holding as much as 40% of Citigroup's common stock." There's no indication of whether the Obama administration would want to take such a large piece of the bank, the newspaper adds, citing sources in the know. The Washington Post's sources say a new bailout of Citi would not necessarily require taxpayer funds if the government instead accepts common stock in Citi, a solution favored by economists and the private sector. "Such a change," the newspaper writes, "might buoy the company by persuading more people to invest alongside the government."

Citigroup is not the only U.S. banking giant inviting closer federal inspection. The Treasury Department this week will begin stress-testing the country’s 20 biggest banks "to judge whether they could hold up even if the downturn worsens further than policy makers already expect," the New York Times reports. It's a tricky task. Obama aides are faced with a dilemma: With investors already on edge, just how public should they be after reviewing the books of tottering giants like Citigroup and Bank of America? It is possible the banks may be lumped into the "too big to fail" camp, the newspaper adds.

Speaking of bailouts, the U.S. Treasury is busy assembling the largest bankruptcy fund in history of at least $40 billion for General Motors and Chrysler just in case the troubled duo file for bankruptcy protection, the WSJ reports this morning. The WSJ's sources stress that Treasury officials hope they never need to use the bankruptcy fund. It's just a matter of "due diligence," they tell the newspaper. "Still," the newspaper writes, "people involved in talks with senior Obama administration officials said that the administration believes that the option of Chapter 11 filings by the two auto makers needs to be seriously considered."

There is no such bailout fund for the nation's struggling newspapers. Philadelphia Newspapers LLC—owner of the Inquirer, the Philadelphia Daily News, and Philly.com—filed for bankruptcy protection on Sunday in a bid to restructure its $390 million debt load, the NYT writes. The Inquirer reports that "the voluntary Chapter 11 filing would not interrupt its daily operations." It quotes its chief executive officer, Brian P. Tierney, as saying, "[O]ur operations are sound and profitable." Paying off the debt load is the problem, as advertising continues to soften, the newspaper adds. The carnage in the newspaper industry wasn't confined to the Philadelphia area this weekend. Journal Register Co., publisher of the New Haven Register and 19 other dailies, also filed for bankruptcy protection over the weekend. The WSJ says these newspaper chains probably won't be the last to file for Chapter 11 as recent debt-funded acquisitions of newspapers begin to unravel in a tougher business climate. "There is a queue of others whose debt ratings are considered risky: MediaNews Group, publisher of the Denver Post and San Jose Mercury News; Orange County Register publisher Freedom Communications Inc.; and small-town newspaper publisher Morris Publishing Group," the WSJ writes.

Even the Middle East is crashing ... well, the non-oil-flush parts of it at least. The WSJ reports that the United Arab Emirates is set to bail out Dubai to the tune of $10 billion now that the once high-flying emirate is being dragged down by the fast-maturing debt it used to fund its extravagant construction boom. The UAE central bank bought half of an unsecured, $20 billion, 5-year notes issue created by Dubai to help cover the $80 billion it had borrowed to transform itself into a regional financial and tourism hub, writes Bloomberg. The loan takes some of the pressure off Dubai's economy, which is reeling from fear throughout the financial markets that it can't meet its debts. UAE's intervention "should ease the cost of insuring against a default, which in recent weeks saw five-year credit default swaps on Dubai debt rising to levels similar to Iceland," writes the FT's Alphaville.

The Swiss government, alarmed at seeing the wall of privacy long boasted by its banking sector come under threat for the first time since the Middle Ages, has accused U.S. authorities of “shock” tactics to force holders of undeclared UBS accounts to come forward. Hans-Rudolf Merz, finance minister and Switzerland’s head of state this year under its rotating presidency, told radio listeners that his government's decision to support last week's disclosure of a limited number of UBS account holders suspected of tax fraud didn't set a precedent for the United States to investigate "all of the bank’s American clients with offshore accounts in Switzerland," the FT reports. And in an aggressive rebuff to the U.S. government's fresh demand for the identities of 52,000 private account holders, UBS has countered that the IRS petition "simply ignores the existence of Swiss law and sovereignty." By upping the ante, the IRS threatens to draw both the U.S. and Swiss governments deeper into the already acrimonious showdown over Swiss private banking practices, writes the WSJ.

Here's a new take on plug-and-play. A California chipmaker, Marvell Technology Group, wants to popularize cheap, energy-efficient computing devices called the "plug computer" to manage our vast personal libraries of digital pictures, videos, and music, the WSJ reports. As the name suggests, it would be a device that could plug into a socket and sync to a home network capable of storing digitized media. There's just one catch: this virtual no-name would have to take on the likes of Apple for a segment of the home-computer market—digital storage—that's yet to really take off.