Stocks Rally For Second Straight Day Following Citi Rescue

Stocks rallied significantly for the second straight session today after the U.S. government announced a shareholder-friendly rescue package for embattled bank Citigroup (NYSE: C). The Dow gained nearly 400 points, or 5%, the S&P 500 rose 6.5% and the Nasdaq 6.3%. This was the largest two-day rally since 1987.

Shares of Citigroup rose 58% today after announcing an agreement with the U.S. Treasury, the Federal Reserve Board, and the FDIC to strengthen the embattled bank. The U.S. Treasury will invest $20 billion in Citi preferred stock under the TARP. The government will guarantee $306 billion of Citi assets for another $7 billion in preferred stock. Citi will issue warrants to the U.S. Treasury and the FDIC for approximately 254 million shares of the company's common stock at a strike price of $10.61. Citi also agreed not to pay a quarterly common stock dividend exceeding $0.01 per share for three years.

The 'anointed financials', the original nine under the Treasury's Capital Purchase plan, all had strong performances today. Citigroup (NYSE: C) +58%, JP Morgan (NYSE: JPM) +21%, Bank of America (NYSE: BAC) +27%, Merrill Lynch (NYSE: MER) +38%, Wells Fargo (NYSE: WFC) +19%, Goldman Sachs (NYSE: GS) +26%, Morgan Stanley (NYSE: MS) +33%, Bank of New York Mellon (NYSE: BK) +24%, State Street Corporation, (NYSE: STT) +13%. The action in these stocks today suggests that traders believe that the Fed will rescue any of these banks without major shareholder consequences.

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