ko

As Citigroup 's (NYSE: C) shares dropped, it was talking to Treasury and the Fed. That should not surprise anyone. The government knows a failure of Citi would damage the world financial system even further and kill consumer confidence in the U.S. banking system.

According to Reuters, "The bank has met with officials from the Federal Reserve and the U.S. Treasury Department in recent days."

The federal government has a number of options. The best is probably to put more money from the Paulson $700 billion bailout package into the bank. What would Citi need? Only its management and regulators know what its balance sheet looks like. Based on guarantees that FDIC might have made on the Wachovia buyout, the need at Citi could be $50 billion.

Cheap for keeping what was once the world's largest bank alive.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Count on management not to tell the truth when things are really bad. General Motors (NYSE: GM) CEO Rich Wagoner keeps saying bankruptcy is not an option for the car maker. It would ruin too many suppliers and kill consumer confidence, pushing more and more customers into the hands of the competition.

Of course, what Wagoner says does not matter. Once GM's creditors get to the point when they have not been paid for several months, they can go into court and press the issue. Bingo. GM has to seek protection.

According to The Wall Street Journal (subscription required), "Members of General Motors Corp.'s board of directors are willing to consider 'all options' for the ailing auto maker, including an eventual filing for bankruptcy protection."

What would a GM bankruptcy look like? For starters, common shareholders and many preferred holders and bond holders would lose most or all of their money. Suppliers would have their receivables from the big car company cut, perhaps by huge sums. But, at least they would not have to lose their largest customer.

One theory about a recession is that people will not buy cars or refrigerators, but they will buy beer, razors, soap and books. If you can't ride around in a new Chevy, at least you can read about someone who is.

That theory went out the window, at least in part, when Barnes & Noble (NYSE: BKS) said its same-store sales were down -- a lot.

Last year, the nation's largest book seller made a little money in the quarter ending November 1. It was a very little, $4.4 million. This year, BKS lost $18.4 billion as same-store sales fell 7.4%. Barnes & Noble also dropped its forecast for the next quarter.

The BKS earnings news is particularly bad as the holiday season begins. Companies that sell discretionary items for under $30 have probably hoped that they would benefit, perhaps only modestly, from consumers looking for relatively cheap gifts for grandpa and the kids.

Even cheap is looking expensive this holiday. Although there is Barnes & Noble stock. It is only $12.25 a share.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Bloomberg is reporting that the global banking industry could lose 350,000 jobs by the middle of next year. That would be about 20% of the employees in the sector.

That level of unemployment represents an almost unimaginable human tragedy and one that might have been avoided in part if management at large financial house had not bet the bank on mortgage derivatives. But, that is water under the bridge.

The question which gets begged is where all of those people will go. Many bankers are not qualified for other high-paying jobs, which means they will stay unemployed for long periods or will face having to take significant cuts in their incomes. Either way, the shift will take a large toll on government services such as unemployment benefits. Let's not forget the lost taxes.

The destruction of the banking industry is a microcosm of what many happen across sector after sector if the recession bites hard. Autos may be the next domino to fall, but retail and hospitality won't be far behind it. Suddenly hundreds of thousands of jobs become millions, and, if things get especially bad, tens of millions.

Financial services is the canary in the coal mine. If the industry cannot fine some employment equilibrium it is bad for everyone.

Douglas A. McIntyre is an editor at 24/7 Wall St.

The New York Times (NYSE: NYT) reported that its October revenue got beat up again. If anything, it was worse than some previous months this year, but it's papers are caught in the vortex of a failing industry. For the month, advertising revenue was down 16.2%. Internet revenue only rose in the single digits, so online sales are not going to save the company.

In an odd way, the drop in revenue was the relative good news because the company also cut its dividend by a very large amount. The payout was cut by 74% to $0.06 per share. To make matters worse, the stock sold off 10% to a 52-week low of $5.72.

NYT has debt that is due next year. Its papers in New England, led by the Boston Globe, are losing as much as 20% of their ad revenue each month.

The company is controlled by the Sulzberger family, which has been in charge for over a century. One of the reasons the brothers and sisters, aunt and cousins have supported management was for the rich payout they received each quarter. Now, that is going away.

With an unhappy family, the company may be in play. Perhaps Rupert Murdock might buy it. NYT would make a nice bookend for The Wall Street Journal.

Douglas A. McIntyre is an editor at 247wallst.com.

Citigroup (NYSE: C) is considering putting all or part of the company up for sale. It is easy to say that the reason is the drop in its share price or a loss of customer confidence. It may not be that simple. The bank's stock has dropped as low as $4.39 yesterday. Five trading days before that, they were over $10.

Across the Atlantic, Barclays (NYSE: BCS), one of the world's largest banks, is trying to raise just over $10 billion to replenish is capital base. Next Monday, shareholders vote on whether or not to authorize the plan. Some observers believe that the firm will lose the vote and its finances will be pushed into in limbo. According to The Wall Street Journal, "If Barclays loses the vote, it could face a challenging time in raising capital." Much of the money is already lined up to come from Qatar and Abu Dhabi

Citi's board of directors may believe that their company could face a similar trial. There is no clear indication that the Treasury will put more money into the bank, although it might do that if Citi appeared to be in a liquidity crisis. But, the cost of that cash might be the bank's independence. The federal government might insist on a deal like the one the Fed has with AiG (NYSE: AIG) which nearly wiped out common shareholders. If Citi decides to go to the market for money, it may struggle to be successful

There is no question. Citigroup is watching the Barclays shareholder vote and knows that the outcome is far from guaranteed to be in the UK bank's favor.

Douglas A. McIntyre is an editor at 24/7 Wall St.

The conventional wisdom is that the next field where the search engine wars will be waged is mobile devices. The theory behind that is that PC users have already decided what search company they want to use. In about 70% of the cases in the US, that is Google (NASDAQ: GOOG).

With the computer market pretty much gone, if Yahoo! (NASDAQ: YHOO) wants to pick up any market share from Google, it has to aim to make deals with handset companies and cellular service providers. It is going down that path, but the success of the move is likely to be modest.

According to Reuters, "Yahoo Inc announced an expansion of its mobile Web portals to T-mobile, so its smart phone users who get data will have Yahoo search by default." Yahoo! also has a deal with AT&T (NYSE:T). The partnerships give the carriers a piece of the search advertising from the mobile service.

Unfortunately, the new deal with T-Mobile will probably not work well. Being the default search engine does not mean much. Almost every person who has a cellphone knows how to set the mobile browser to use Google. In most cases, PCs come with a default browser, and if it is not Google a lot of consumers simply change the setting.

Google does not do well on the PC because it is set up as the first option by the manufacturer. It does well because it is the most effective search engine. People getting T-Mobile phones already know that.

Douglas A. McIntyre is an editor at 24/7 Wall St.

There are no headlines when a restaurant cuts ten people or the local print shop cuts five. If fees fall at a doctor's office, the receptionist may have to leave.

By most estimates, small businesses, those with under 100 workers, employ 50% of the American workforce. While the announcements of banks and car companies cutting tens of thousand of employees make the front page, the economy may be hurting more by the declining revenue and credit crisis at firms no one has ever heard of.

According to Reuters, "Wall Street's pain is rippling through U.S. small businesses, as bankers who once pulled in million-dollar bonuses lose their jobs and cut back spending on everything from parties to home improvements."

This may point to the fact that the bailout is being aimed in the wrong direction. While $700 billion may help large financial firms and may even be used to save tens of thousands of people from home foreclosures, there is nothing concrete being done by the federal government to help the small business owner.

What could be done? For starters, The Small Business Administration, a federal agency, should be assigned some of the $700 billion Paulson package. Credit-worthy companies should have access to that in the form of loans. Doing this would require far more people than the SBA has, so it would need to be done through the banking system. Banks should be given financial incentives to lend money provided by the fund.

The government is overlooking one of the most critical parts of the economy. In doing so, it is almost certainly helping unemployment push above 7%.

Douglas A. McIntyre is an editor at 24/7 Wall St.

It really is not all that shocking with financial firms like Citigroup (NYSE: C) hitting multi-year lows, US financial companies may need another $1 trillion in capital.

According to Reuters, "The U.S. financial system still needs at least $1 trillion to $1.2 trillion of tangible common equity to restore confidence and improve liquidity in the credit markets, Friedman Billings Ramsey analyst Paul Miller said."

Miller points out that US financial companies have $37 trillion dollars in debt outstanding.

What is not so clear is why things will get so much worse, why such a huge amount of capital will be required? LBO debt is substantial, but not to the extent that it would move the needle to $1 trillion. Many mortgage-backed securities have been sold off or hedged.

The real issue now would appear to be consumer debt. If unemployment rises above 8% and credit become harder to come by, the defaults on car loans, mortgages, and credit cards could rise into the hundreds of billions of dollars. It is important to remember that there is toxic paper attached to these pools of loans as well.

The credit crisis started with complex derivatives. It may end with the poverty of the average man on the street.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Hewlett-Packard (NYSE: HPQ) says it is doing fine. It said it expects its earnings to stay strong. That should carry over to other PC and printer companies as what is good for one is good for all. But it looks like that logic is wrong this time. In the case of Dell (NASDAQ: DELL), it may be so wrong that investors might wish Michael Dell would have stayed in retirement. When his company was in trouble almost two years ago, he stepped back into the CEO job.

Dell comes out with earnings this afternoon and Wall Street is worried. According to The Wall Street Journal, "Research from Gartner, an information-technology research firm, shows that Dell is losing market share globally."

Even H-P is not immune from the market downturn. Its shares are off about 32% in the last year, which is slightly better than the DJIA. But Dell's shares are down 60% as very few analysts believe Dell has renewed its product line enough. They don't think Dell has new products with prices and features that are likely to pull in customers from the likes of H-P and Apple (NASDAQ: AAPL).

Dell's troubles bring up another subject: founders are not saviors. The other high-profile founder who came back to work to "save" his company recently was Howard Schultz of Starbucks (NASDAQ: SBUX). His company's shares are down 70% in the last year. His coffee shops look like ghost towns. Layoffs and other cost cuts have not kept up with falling earnings.

The market cheered the news when Dell and Schultz came "home," but the skills of creating a company may not match those of running it when the operation gets larger and more complex. At least not if Wall Street looks at Starbucks and Dell.

Douglas A. McIntyre is an editor at 247wallst.com.

Markets in Asia has a sharp sell-off.

The Nikkei fell 6.9% to 7,703. The Hang Seng dropped 4% to 12,299. The Korean Kospi was off 6.7% to 965.

Most markets in Europe were down nearly 3% at the open.

Data from Reuters.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Maybe it is one of the reasons that Google (NASDAQ: GOOG) and Procter & Gamble (NYSE: PG) are among the best managed companies in America. They will go to almost any legitimate lengths to improve their knowledge of businesses that will help them expand and prosper.

P&G would like to know more about how to sell its scores of products online. Google wants to know more about TV advertising. The search company has been trying to break into the television commercial brokerage business for over a year, with little success.

According to The Wall Street Journal, "So far, about two-dozen staffers from the two companies have spent weeks dipping into each others staff training programs and sitting in on meetings where business plans get hammered out." That should worry other media that make money from P&G's $8 billion plus annual marketing budget. Google may not be sending people to learn about TV; it may simply trying to sell its own product.

While P&G may learn something about how to use search ads to get more people into stores, Google stands to pick up a decent piece of the packaged goods company's product sales budget. Magazine publishers, TV executives, and radio managements are not being brought in for similar gatherings. They do not have such an intimate platform for making their cases.

Google has always been remarkably clever. Now it is hurting the competition by climbing into the customer's tent.

Douglas A. McIntyre is an editor at 247wallst.com.

There is an old phrase, "Doing well by doing good." Show the public what a nice guy you are and people will be more likely to do business with you.

According to The New York Times, "Responding to the economic downturn, Wal-Mart Stores Inc. plans to give more than 90 million pounds of fresh food annually to the nation's largest nonprofit organization addressing hunger, Feeding America." That seems like a lot of food, probably because it is.

Wal-Mart's (NYSE:WMT) new program will certainly help the poor but it may not bring the retailer more sales. There may be some good PR in it, but there's no guarantee that the initiative will help bring in customers at all. In that way, it is truly charitable.

A number of big companies give money to museums and the arts. Many encourage their employees to contribute to the United Way or help out on community projects. But it would be hard to find something which has such a direct benefit as feeding people who cannot feed themselves.

Wal-Mart has take its share of beatings in the press. It ought to get a lot of credit here.

Douglas A. McIntyre is an editor at 247wallst.com.

For Citigroup (NYSE: C) to regain the confidence of Wall Street it will have to start doing a few things right. Firing 53,000 people probably does not qualify. After that news, Citi hit another 52-week low at $7.80, down from a 52-week high of $35.29.

More losses won't help. Some bank analysts believe that Citi's consumer credit portfolio and derivative assets will cause negative earnings right through 2009.

Now, the big bank gave investors another reason to turn their backs as it closed one more of its hedge funds, which lost 53% of its value in a month. Taking the value of assets down that much in such a short period probably requires as much skill as showing an increase of a similar size. In other words, it is extraordinary.

According to the FT, "Citigroup is liquidating its Corporate Special Opportunities hedge fund after it lost 53 per cent of its value last month, marking the ninth time in recent months that the bank has had to close or rescue a fund." At its peak, the fund had over $4 billion in assets.

The point in this is not only that Citi keeps making mistakes. In addition, the bank might as well fire its entire public relations and corporate communications staff. They are of no use to the firm as long as it keeps cutting its own throat in front of the press and shareholders. Dispensing with the PR group could be part of the big, planned layoff. No one would miss them

Douglas A. McIntyre is an editor at 24/7 Wall St.

Sirius XM (NSADAQ: SIRI) faces a number of problems. Those caused the stock to drop to 20 cents yesterday, down from a 52-week high of $3.94.

Sirius is not only sitting on between $3 billion and $4 billion in debt. It has also never posted a net profit. There are still questions about whether its merger with XM Satellite will yield enough cost cuts to make the operation profitable.

But, none of those things are the final nail in the coffin. If one of The Big Three goes under, especially if it is GM (NYSE: GM), Sirius will lose one of its largest sources of new subscribers. Since some people who take the service drop it every month, which is normal attrition, those customers have to be replaced. For the company to grow, each month has to show net new additions which greatly outweigh cancellations.

Sirius cannot afford to lose its flow of customers from a major car maker. If it does, it debt service will overwhelm it, and finding new capital will be impossible. Who want to lend money to a company which is losing its most important sales pipeline?

If GM drops, Sirius will fall within a month.

Douglas A. McIntyre is an editor at 24/7 Wall St.