Will Citigroup (C) Bail Out Northern Rock?

The Telegraph has a story indicating the Citigroup (C) may offer British mortgage company Northern Rock at $20 billion line of credit to remain independent and work itself out of its lending mess. After Citi’s losses, some of which had to do with problems in the mortgage markets, perhaps someone should tell them that getting deeper into the quicksand is a bad idea.

Northern Rock was saved by funds from the UK government, but now that company has to find a way to stand on its own. US hedge funds JC Flowers and Cerberus have considered buying the bank, or its assets. But, such a move could wipe out all of the shareholders, and some of the company’s bonds. A credit line that would give the company time to dig itself from under its mountain of problems might be preferable.

Of course, if Citi puts the money up, it is risking taking a bigger bet on a business that has already bitten it. But, the US bank has not been adroit managing its affairs over the last few months, so why should this case be any different?

Douglas A. McIntyre