Did international bank rules discounting tax losses have anything to do with the timing of the deal between Citi and the Treasury?

This is conspiracy theorizing at its best (or worst, depending on your point of view). But can it be purely a coincidence that Citi and the Treasury worked out their deal on a tax break for the bank's net operating losses right before international regulators came out with new rules that would disallow such deferred tax assets as counting toward Tier One capital?

Some observers point out that Citi isn't alone in receiving this form of taxpayer largesse, and that the Basel committee is behind the curve here.

"It is pretty ironic that Basel is finally moving on DTAs at the same time that UST has been handing out exemptions to the rules for GMAC/Cerberus, Chrysler and now Citi," observed Christopher Whalen, a bank analyst who runs the website, Institutional Risk Analyst, in an email to me a few minutes ago. "It is not like our government does not need the money."

Still, the timing in Citi's case is especially noteworthy. If Citi couldn't use its $38 billion in net operating losses in that way, then it would have to raise that much more capital from equity investors. And that's almost twice as much as the bank plans to raise. That's a formula for dilution and the downward pressure it creates on a stock's price, when Citi management and Treasury Secretary are doing everything possible to increase it.

The thing is, investors aren't going along with the plan. And that makes one wonder if Citi still isn't undercapitalized.

One thing's for sure: Retail investors aren't quite as foolish as Wall Street thinks.