ANALYSIS:THE US government's radical plan to stabilise Citigroup sent a signal that it views some US banks as too big and too important to fail.

Jaret Seiberg, analyst at the Stanford Group, a research provider said: "For the systemically significant financial institutions that remain, the Citigroup transaction represents the blueprint for future rescues."

Shares of other large financial institutions such as Bank of America, Morgan Stanley and Goldman Sachs surged yesterday as investors interpreted the rescue plan as an indication that further government bailouts, if necessary, would provide more protection for shareholders.

Previous rescues, such as those for AIG, Fannie Mae and Freddie Mac have all but wiped out shareholders.

But in contrast, the government's rescue package for Citigroup was structured in a way that protected holders of the bank's debt and diluted the bank's shareholders only by the cost of $20 billion (€15.5 billion) of additional preferred stock for the US government.

At the same time, the rescue will help protect the bank from losses on a $306 billion pile of troubled US home loans, commercial mortgages and corporate loans, prompting some banking advisers to question whether the handful of other large US banks that still have toxic assets on their balance sheets will now push for similar support.

Citigroup perhaps best fits the bill of being "too big to fail". The US financial services group has more than $2,000 billion in assets, and operates in more than 100 countries.

But the fallout from the Lehman Brothers collapse has convinced many on Wall Street that the financial system cannot support the failure of a range of its larger institutions.

"I don't see how the government can refuse," one adviser said. "I've got to guess they assumed others would jump in line."

Much less certain is what strategic direction Citigroup should take after the dust settles, and how long Vikram Pandit, the bank's embattled chief executive, can remain at the helm.

People close to the financial giant surmised that two key components of its business - its US deposit base and its extensive operations overseas - could have drawn interest. With a safety net now strung beneath Citigroup, there may not be an immediate need to divest assets that represent its muscle, rather than fat, in order to raise capital.

Liquidity and capital positions at Citigroup are significantly stronger than they were at AIG at the time of AIG's bailout, which has forced the insurer to consider sales of a broad range of assets.

However, Mr Pandit had already said back in May that the bank would sell at least $400 billion of assets within three years as part of a massive turnaround attempt.

The bank may work to accelerate those divestitures, which deal makers have expected could include its US-based Primerica insurance sales business and retail banking operations in Germany and Brazil. - ( Financial Timesservice)