Let Citigroup Fail: Analyst

Chris Whalen, managing director of Institutional Risk Analytics, thinks regulators need to stop pussyfooting around Citigroup (C).

Whalen, who has worked as an investment banker and research analyst for years, is one of the few people with an eagle eye for banking data and the ability to challenge the Federal Deposit Insurance Corp. on its reports. His company have already released its own bank grading system ahead of the government's bank stress tests and currently advises customers that are looking to acquire banks.

Whalen spoke with TheStreet.com on Thursday, ahead of the earnings release for Citigroup.

TheStreet: Is Citi going to have a situation like General Motors (GM)?

Whalen: I think so. I hope so. The company needs to be restructured. What needs to happen is the regulator needs to replace management and most of the board. The new management team needs to have a conversation with the bondholders, and that conversation should go something like this: "We're going to convert you all to equity. Part to common, part to preferred. The government's going to put some money in." Happy days. The problem is over.

So they should change out the guys at the top?

Yes, all of them.

We saw that with General Motors. They stepped in and said you're going do things our way now.

What people forget is that regulators don't have legal authority over a corporation, but they have the authority to replace management and so I think that what's got to happen is either President Obama or Secretary Geithner has got to indicate to Mr. Parsons and the rest of the Citi board that it's time to go. And then they've got to pick a new management team and I think that management team should proceed with a restructuring of the company. That includes the conversion of debt into equity so we get rid of the problem.