Citigroup will remain independent, sort of

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Fed chief Bernanke argued fairly strongly in his appearance before the Senate committee on banking yesterday that it would not be desirable or necessary to nationalize any of America's banks. Whether that is true or not depends on the definition of "nationalization."

A look at how Citigroup (C) is being managed now shows that the lines between private and public ownership are blurring.

According to The Wall Street Journal (subscription required), "Citigroup executives are attempting to strike a seemingly impossible balance: Run the business in a way that will please their new federal masters, but also help the bank rebound from $28 billion in losses over the past five quarters." The part about "masters" is telling.

By the most strict standard of nationalization, Citi will remain independent. The government will own only 40% of the bank's common shares and those held by other investors will not be wiped out. But it is unlikely that Citi will be in charge of its own fate.

The government has already pressured Citi to make sure that management did not take bonuses last year. It also forced the bank to give up its new private plane. That kind of meddling will only increase as the government's stake increases. Citi's board may have almost no role in overseeing management.

That sounds a lot like nationalization to me.

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

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