Citigroup: The End Draws Near 96 comments
Vernon Hill
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The end is nigh for yet another great American company: Citigroup (C), once the greatest U.S. financial institution of them all.
As Tom Brown and I have noted many times, the whole idea behind Citigroup was flawed from the start. 
Unbeatable scale in financial services? Forget it. We now see the good Citi's size has done for investors: the company has an incoherent, unworkable business model. It is run by a senior management team that's largely unproven, with scant experience operating a large financial institution. And the company's risk controls (if the past few years are any evidence) are hopelessly inadequate to the task.
While the conventional wisdom says Citi is too big to fail, the reality is it's too big to manage. As a result, the company has become a publicly traded incarnation of Murphy's Law: anything that can go wrong almost certainly will-and probably sooner rather than later. And $25 billion in TARP money isn't going to do much to turn things around.
As we discussed when WaMu finally hit the wall, once problems reach this magnitude there is no solution.
Citibank in its present form cannot, and almost certainly will not, continue to exist.
Disclosure: None
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This article has 96 comments:
Too many investments in too many areas including banks like MS, GS AND WELLS.
If Citi dumps their shares of those banks what will happen then ?
Barlays is Citi check out the major holders!
Go with the wave...Just like the ANALists...
this article has ZERO value
I spent the day analyzing Citi's financial statements looking for what they were doing wrong. They aren't doing things wrong. The present sell off is irrational and unjustified.
Their loan loss reserve is bigger than the share price. Their operating cash flow is positive $45 billion per *quarter*. All of the recent losses are purely non-cash, due to filling up their loss reserves and marking to market assets declining in price but paying higher rates on their lower prices.
Their cost of funds is 3% and they have pushed out the average maturity of their debt to 7 years. They can get through the next year without selling a single dollar of debt. They are earning over 6% on their book, for an interest margin over 3% - and their funding costs are falling, not rising. Yes, distress in the aftermarket has sent their bond yields to 10%, but the Fed has sent their short funding costs in the other direction and it is a bigger portion, since they don't have to refinance debts at the higher rates.
Frankly, they could instead restore the magical tangible book everyone worries about by buying in their own debts at 75 cents on the dollar, out of free cash. Or their stock, come to that. All of it, in about 6 weeks.
When a company could take itself private without exterior financing and fairly be worth 11 figures after doing so, Mr. Market's brains have left the building.
I want to remind all his critics that point to his lack of experience in consumer banking - if that were true, wouldn't his first instinct be to actually break the company immediately instead of taking the time to understand how short-term funding costs have a tremendous impact on a pure play investment bank?
It's ridiculous how these writers operator:
a) look at stock market
b) jot down list of biggest gainers and losers
c) cross-reference with archives to see if you can find old bits of informations to throw around
d) write doomsday article
Good job, smartass. But you're going to have to do better than say "It's dead and I don't know quite exactly why in details it's dying right now but the stock is down 50% so there you go".
Freedom was at stake. But now we are owned by foreigners. Our government has utterly failed. Game over for them.
The Market is essentially saying that C just won't be allowed or able to make money in the future. Everyone who is hammering their stock (hedgefunds) knows how corrupt wall street has been over the last decade and what a ponzi scheme it was in the wild Clinton/Bush years. These insiders know that the game is over and is betting Citi won't survive. The mart money targeted, Bear, then AIG, GE, Lehman, even GS, where they were all trained, C.
What will be their next target?
from my experience, i can tell you that you cannot directly scale up (or down) business models. when you do - any and all models will fail. at a certain point you must reorganize, and unfortunately that point is always at an economic downturn because that is when it becomes very obvious.
Citi is not a great bank but it is not in such a horrible shape either, it is the most international of all banks in the world.
Unless this type of practice is banned for good, there is no telling where it would stop. The ordinary fold would read that Citi traded at near $3 and withdraw their money. We all know what would happen then.
I don't see Paulsen , let alone Cox doing anythuing though!
I really can't see why the uptick rule can't be reinstated. That would really help the situation. Also, CDS swaps aren't trading nearly as high as other large financial institutions' were before they folded. As of yesterday, they were trading at 360 basis points, compared to over 3000 for the other doomed banks. I think Citi may be a buy here, but only with true MAD Money.
This is a big part of the problem. People on the net and TV yapping endlessly about things they know nothing about.
On Nov 21 08:15 PM bankanalyst wrote:
> You provide no reasoning other than some irrational and emotional
> justification based on past precedence (WaMu) that is totally irrrelevant
> to the current circumstances. Whether or not Citi fails to exist
> in its current form notwithstanding, your ego driven grandstanding
> and the reaction you intend to induce is despicable. Reading your
> bio, i cannot believe you had held such high level positions in the
> banking system but then again perhaps we are where we are because
> of people like you. You were despised at CommerceBank despite having
> 'invented' evening and weekend hours. As many others have noted,
> you are a legend in your own mind. Go back to your golf and leave
> this to unbiased professionals. ZERO Value gibberish.
What the stock price reflects is the market's simple answer to the question - Why would anyone want to buy common shares in the motley collection of suspect companies under the Citi umbrella where the consolidated balance sheet (never mind any SIV type stuff) is beyond comprehension. Parts of the group have so much exposure to illiquid asset backed instruments that no one understands and another part is super exposed to consumer credits which become increasingly vulnerable as the rate of unemployment rises.
The answer is: to gamble. I bought 30 shares yesterday at 3.5...I'll leave it alone in my 401k until it either recovers (maybe in 5 yrs or so?) or goes bust (maybe in a week?). The worst I can do is lose $121 (including trading fees)...my girlfriend has lost more than that playing the lottery in the last few months.
On Nov 22 04:45 AM morph man wrote:
>Why would anyone want to buy common shares in the motley
> collection of suspect companies under the Citi umbrella where the
> consolidated balance sheet (never mind any SIV type stuff) is beyond
> comprehension.
More massive bailouts?
What about their pending lawsuit against Wells Fargo?
On Nov 21 04:18 PM JasonC wrote:
>
> I spent the day analyzing Citi's financial statements looking for
> what they were doing wrong. They aren't doing things wrong. The
> present sell off is irrational and unjustified.
>
> Their loan loss reserve is bigger than the share price. Their operating
> cash flow is positive $45 billion per *quarter*. All of the recent
> losses are purely non-cash, due to filling up their loss reserves
> and marking to market assets declining in price but paying higher
> rates on their lower prices.
>
> Their cost of funds is 3% and they have pushed out the average maturity
> of their debt to 7 years. They can get through the next year without
> selling a single dollar of debt. They are earning over 6% on their
> book, for an interest margin over 3% - and their funding costs are
> falling, not rising. Yes, distress in the aftermarket has sent their
> bond yields to 10%, but the Fed has sent their short funding costs
> in the other direction and it is a bigger portion, since they don't
> have to refinance debts at the higher rates.
>
> Frankly, they could instead restore the magical tangible book everyone
> worries about by buying in their own debts at 75 cents on the dollar,
> out of free cash. Or their stock, come to that. All of it, in about
> 6 weeks.
>
> When a company could take itself private without exterior financing
> and fairly be worth 11 figures after doing so, Mr. Market's brains
> have left the building.
1) Regarding short sellers, Their Oct.28 disclosure of short interest shows only 3% of the float being shorted. Is this nearly enough to cause the stock to crater?
2) No one has really mentioned the 1 Trillion dollars of SIVs that are STILL hidden on the balance sheet and the perceived counterparty risk to these SIVs. They have not magically gone away in the past 6 months and are waiting like an exploding time bomb. If anything the risk has become greater, IMHO.
3) In the near future, Option ARMS , credit cards and auto loans etc. are going to be piling up losses faster than they can be counted. This is NOT going to help matters much.
Disclosure: No position on Citi, but watching with interest. Please comment.
Thanks!
It is, however, almost certainly too well connected to fail. The line separating private governance and public control of banks has blurred; Citi and Goldman Sachs are the primary points of crossover. Look at the players, and explain to me how Citi will be allowed to fail.
jimrogers-investments....
One day (after Lehman's failure) regulators decide that short selling is so evil that it must be totally banned. Then after a month, it comes back as if there is nothing wrong with it. Is this the way a system is protected? Is it not prudent to keep some controls and checks until the doubts are totally removed. Why does the decision have to be binary?
I would say that until a clear decision can be made on short selling (if it can ever be made), it should be kept in check and made difficult to abuse by ATLEAST REINSTATING THE UPTICK RULE.
During times of heightened systemic risk such as these, shortselling, even if it was good and helped in price discovery etc, is definitely prone to abuse as every one is bearish.
When MS and GS were falling, there was a debate about Universal banks and Investment banks that diversified model was better as it had depth to cushion the losses. So what now? Citi is perhaps the most diversified.
I totally agree that this article provides no insight as to why is Citi's stock falling? Just zero value gibberish such as "incoherent, unworkable business model", "largely unproven", "company's risk controls are hopelessly inadequate". With all due respect, tell us what do you mean by saying "largely unproven", or why has the business model suddenly become incoherent or why are risk controls adequate? Do not pronounce verdicts after the fact. I bet you would have pronounced "largely proven" and "aqequate risk controls" if the company's shares were going up.
Saying that Citi´s business model explains the stock price crisis is crazy. Maybe its not the best model, but this is not new information so why now this would explain the price crisis. Furthermore, some months ago a lot of analysts said that actually the business model worked when they saw what happened to Lehman.
So actually you don´t need the government to take over Citi to tae the pressure out of it, you just need the government to say that Citi is well capitalized, that it has adequate liquidity (and illimited access to them) and that it doesn´t need government funds and that the government stands back behind Citi´s debt, as it does with other banking institutions.
Short sellers will get crushed with this kind of statement.
Me too.
I don't necessarily agree or disagree with his conclusions; as I haven't formed an opinion on the matter; I just don't see the point in this article.
Not even Hitler's propaganda stacks up the garbage you write.
On Nov 21 03:36 PM jack dee wrote:
> would you be short perhaps?
If you disagree with JasonC's analysis say why, rather than making some silly Hitler comment.
On Nov 23 01:03 AM wyosteven wrote:
> I have nothing notable to say except that every time JasonC asserts
> something, he's in a hole and just keeps on digging.
>
> Not even Hitler's propaganda stacks up the garbage you write.
On Nov 21 04:05 PM epicure wrote:
> Great article...!!!!
>
> Go with the wave...Just like the ANALists...
>
> this article has ZERO value
>
There's no crisis in confidence in Citi here at Seeking Alpha. But everywhere else, there sure is. Me? I'll have to side with the rest of the market, and assume that usually the short sellers are right.
Citigroup is only in this predicament because of Paulsons decision last week to abandon the whole purpose of TARP - to purchase troubled assets. When he made the announcement, he said some of the same original banks will now need additional injections. What is he waiting for. Citigroup, Bankamerica,JP Morgan, lost up to half their value with Citigroup being the worst. If you eliminate short selling, Citigroup would rally. What's happening is you have a huge amount of short selling and at the same time their buying cedit default swaps. Watch what happens to the stock if the SEC re-instates a ban on short selling on financials. Christopher Cox of the SEC has a conference call Monday regarging this. Citigroups financials are actually better than Bankamerica and JP Morgan since both purchased companies with very bad financials. These are the three largest financials in the United States. Once Citigroup gets through 2009, it will get back to earning 25 billion per year. You don't panic because profiteers are trying to destroy the stock so they can make a quick buck. Nothing has changed with Citigroups financials in the past month when the President of the United States, Fed chairman Bernacke, FDIC chairwoman Sheila Bair, Treasury secretary Paulson all agreed that Citigroup would takeover Wachovia.Go to the FDIC's website and read the Sept. 29th press release. They were obviously healthy enough then. Citigroups financials will begin to improve quickly with gas prices cut in half. Eighty percent of the country lives paycheck to paycheck. With your average couple paying $50 less per week in gas, that's $2,600 extra for mortgage and credit cards that wasn't there in August when it was still $4 a gallon. Consumers only had this price break for the past 8 weeks. If the price of gas stays down, that's huge for them
Citigroup is only in this predicament because of Paulsons decision last week to abandon the whole purpose of TARP - to purchase troubled assets. When he made the announcement, he said some of the same original banks will now need additional injections. What is he waiting for. Citigroup, Bankamerica,JP Morgan, lost up to half their value with Citigroup being the worst. If you eliminate short selling, Citigroup would rally. What's happening is you have a huge amount of short selling and at the same time their buying cedit default swaps. Watch what happens to the stock if the SEC re-instates a ban on short selling on financials. Christopher Cox of the SEC has a conference call Monday regarging this. Citigroups financials are actually better than Bankamerica and JP Morgan since both purchased companies with very bad financials. These are the three largest financials in the United States. Once Citigroup gets through 2009, it will get back to earning 25 billion per year. You don't panic because profiteers are trying to destroy the stock so they can make a quick buck. Nothing has changed with Citigroups financials in the past month when the President of the United States, Fed chairman Bernacke, FDIC chairwoman Sheila Bair, Treasury secretary Paulson all agreed that Citigroup would takeover Wachovia.Go to the FDIC's website and read the Sept. 29th press release. They were obviously healthy enough then. Citigroups financials will begin to improve quickly with gas prices cut in half. Eighty percent of the country lives paycheck to paycheck. With your average couple paying $50 less per week in gas, that's $2,600 extra for mortgage and credit cards that wasn't there in August when it was still $4 a gallon. Consumers only had this price break for the past 8 weeks. If the price of gas stays down, that's huge for them
Manipulation at it's finest. Where is your disclosure position vernon?
www.marketrap.com/arti...
You are supposed a bank expert. Still, you are comparing C to WM. What a joke. Maybe I should be a chairman too!
Maybe I am too negative. We could have a worldwide Depression that dwarfs that last one. Are we in the beginning of a Depression already? The signs of a Depression are awesome. You see the patient sitting around in a corner, not eating, not drinking, speaking to himself/herself. The medical profession sometimes had to administer "shock treatment" to bring the patient around. In the last Great Depression Treasury Secretary Mellon recommended to then President this remedy.
On Nov 23 11:30 AM mik123 wrote:
>
>
>
>
> Citigroup is only in this predicament because of Paulsons decision
> last week to abandon the whole purpose of TARP - to purchase troubled
> assets. When he made the announcement, he said some of the same original
> banks will now need additional injections. What is he waiting for.
> Citigroup, Bankamerica,JP Morgan, lost up to half their value with
> Citigroup being the worst. If you eliminate short selling, Citigroup
> would rally. What's happening is you have a huge amount of short
> selling and at the same time their buying cedit default swaps. Watch
> what happens to the stock if the SEC re-instates a ban on short selling
> on financials. Christopher Cox of the SEC has a conference call Monday
> regarging this. Citigroups financials are actually better than Bankamerica
> and JP Morgan since both purchased companies with very bad financials.
> These are the three largest financials in the United States. Once
> Citigroup gets through 2009, it will get back to earning 25 billion
> per year. You don't panic because profiteers are trying to destroy
> the stock so they can make a quick buck. Nothing has changed with
> Citigroups financials in the past month when the President of the
> United States, Fed chairman Bernacke, FDIC chairwoman Sheila Bair,
> Treasury secretary Paulson all agreed that Citigroup would takeover
> Wachovia.Go to the FDIC's website and read the Sept. 29th press release.
> They were obviously healthy enough then. Citigroups financials will
> begin to improve quickly with gas prices cut in half. Eighty percent
> of the country lives paycheck to paycheck. With your average couple
> paying $50 less per week in gas, that's $2,600 extra for mortgage
> and credit cards that wasn't there in August when it was still $4
> a gallon. Consumers only had this price break for the past 8 weeks.
> If the price of gas stays down, that's huge for them
I think confidence could return if Pandit is replaced.
Doom and gloom from a short
Shame on you
It wasn't the short sellers who told Chuck Prince to run dozens of unsupervised businesses, levering and blowing through billions of company capital. It wasn't the short sellers who told Citi to go boldly into the CDS markets, move the assets off balance sheet, announce to the world they wouldn't be bringing them back, then doing so. It wasn't the short sellers that blew up Pandit's hedge fund, had Citi make the investors whole, then name Pandit CEO. It wasn't the short sellers who sold investors billions of dollars worth of Auction Rate Securities, then let them blow up. It wasn't the short sellers that disclose, month after month after month, more exposure to toxic assets than they acknowledged previously. And it wasn't the short sellers that paid Robert Rubin $15 million a year to jet around the world with a cup in his hand, borrowing all he can at 13%.
Some of the bullish posters on C have a slavish devotion to this company that beggars belief. Time will tell. But usually short sellers are right.
First, Mr. Market is way wrong, everything you've seen in C's price is completely irrational, and C has no need for TARP or any other kind of bailout.
Second, your memo is wrong. Go back and refigure your figures, Junior. "Never trust a memo".
RL
On Nov 21 04:18 PM JasonC wrote:
>
> Frankly, they could instead restore the magical tangible book everyone
> worries about by buying in their own debts at 75 cents on the dollar,
> out of free cash. Or their stock, come to that. All of it, in about
> 6 weeks.
>
> When a company could take itself private without exterior financing
> and fairly be worth 11 figures after doing so, Mr. Market's brains
> have left the building.
Nice.. I guess you are leading the way in short sales on Citi. Go LONG!!
The problem is the lack of an UPTICK rule allows massive, concentrated short selling that cascades when long sellers have to sell too. It might not be an "uptick rule" but there really needs to be some mechanism to throttle the short selling rate.
On Nov 22 12:02 PM Emerald wrote:
> Financially, Citi can survive. Short sellers are on the rampage and
> naked short sellers should be put in jail! Paulson has chosen to
> leave his job early and should be fired immediately for incompetence.
> Bush just left the country in a crisis. Reinstate the uptick rule
> and provide Citi a bridge loan. Otherwise, Citi's failure will show
> us what the "new" great deprssion will look like when the government
> institutes a national bank holiday through the end of January 2009.
The problem is the lack of an UPTICK rule allows massive, concentrated short selling that cascades when long sellers have to sell too. It might not be an "uptick rule" but there really needs to be some mechanism to throttle the short selling rate.
On Nov 22 12:02 PM Emerald wrote:
> Financially, Citi can survive. Short sellers are on the rampage and
> naked short sellers should be put in jail! Paulson has chosen to
> leave his job early and should be fired immediately for incompetence.
> Bush just left the country in a crisis. Reinstate the uptick rule
> and provide Citi a bridge loan. Otherwise, Citi's failure will show
> us what the "new" great deprssion will look like when the government
> institutes a national bank holiday through the end of January 2009.
Isn't deregulation wonderful!!
to run c to zero in the face of immensely valuable domestic and international franchises merely reflects the herd mentality instigated by the shorts industry...i.e hedge funds hot money. in a very difficult economic and financial climate their decision to ignore national interests in favor of a trade is disgusting. an immediate ban on short sales or at least reinstating the uptick rule by the sec should be demanded. but oh yeah, political contributions by the hedge fund industry have bought washington. this is the same lunancy that buried lehman and bear etc etc.
Rather than bash the perma-posi-spin that some posters assert, I'd like to point out that it's more often than not what is NOT said that is truth.
Arguably that's why we're in this mess to begin with.
The problem with Citigroup is trust -- the one thing one can't quantify on financal statements nor a Saudi prince's behavior.
On Nov 23 08:12 AM Bluebird Aming wrote:
> You are right, your comment is not notable.
> If you disagree with JasonC's analysis say why, rather than making
> some silly Hitler comment.
I don't see one analyst stating to sell any of the big three financials. In fact I have seen Dick Bove and Mayo say buy with price targets 3-6 times Citigroups current price. These are two of the top 3-4 analysts who rate the stock. Mayo came out Friday after the close and said the minimum value would be $9+ .
Citigroup and the other two are only in this predicament because of Paulsons decision last week to abandon the whole purpose of TARP - to purchase troubled assets. When he made the announcement, he said some of the same original banks will now need additional injections. What is he waiting for. Citigroup, Bankamerica,JP Morgan, lost up to half their value with Citigroup being the worst. If you eliminate short selling, Citigroup would rally. What's happening is you have a huge amount of short selling and at the same time their buying cedit default swaps. Watch what happens to the stock if the SEC re-instates a ban on short selling on financials. Christopher Cox of the SEC has a conference call Monday regarging this. Citigroups financials are actually better than Bankamerica and JP Morgan since both purchased companies with very bad financials. These are the three largest financials in the United States. Once Citigroup gets through 2009, it will get back to earning 25 billion per year. At 10x earnings that's a 250 billion market cap which is 12.5x the current market cap. 12.5x the current price takes it to $47 a share. Investors who bought GPU after Three Mile Island at $3 ended up getting 20-30x their money. It takes guts when it looks questionable. You don't panic because profiteers are trying to destroy the stock so they can make a quick buck. Nothing has changed with Citigroups financials in the past month when the President of the United States, Fed chairman Bernacke, FDIC chairwoman Sheila Bair, Treasury secretary Paulson all agreed that Citigroup would takeover Wachovia.Go to the FDIC's website and read the Sept. 29th press release. They were obviously healthy enough then. Citigroups financials will begin to improve quickly with gas prices cut in half. Eighty percent of the country lives paycheck to paycheck. With your average couple paying $50 less per week in gas, that's $2,600 extra for mortgage and credit cards that wasn't there in August when it was still $4 a gallon. Consumers only had this
On Nov 23 03:15 PM wyosteven wrote:
> You are correct, my apologies.
>
> Rather than bash the perma-posi-spin that some posters assert, I'd
> like to point out that it's more often than not what is NOT said
> that is truth.
>
> Arguably that's why we're in this mess to begin with.
>
> The problem with Citigroup is trust -- the one thing one can't quantify
> on financal statements nor a Saudi prince's behavior.
>
>
>
No, I'm afraid this party's over. Any remaining banks will simply emulate Barclays during the Lehman Bros. collapse and wait to pick off the juciest cuts from the Citigroup carcass if it falls. Frankly, I'm expecting the US Treasury to take the whole sorry mess into "conservatorship" like it did with FNM and FRE.
Further sauce for the goose will likely be provided in the form of the dreaded "credit event" stipulations in the contracts that sellers of Credit Default Swaps covering Citi debt being triggered. Let's see AIG get outta this one ! LOL
I'll bet all the loudmouths on this thread spoutiing nonsense about short-sellers haven't got a damned thing to say about the criminal short-selling of gold and silver on the COMEX. Punishing the man on the street trying to safeguard his wealth by artificially suppressing the spot price through proxies is beneath contempt and they WILL be exposed along with all the liars who talked up Bear's, Lehman's and Merrill's, AIG's, WaMu's, Wachovia's, Freddie's and Fannie's stock prices before they plunged.
"Conspiracy Theory", I hear being shouted at screens around the world. You think so ? Take a look at the price of gold on the COMEX as it opens and then tell me it's a coincidence that it gets smacked down almost every day. Look at the price of an ounce of gold on Ebay and compare that with the spot price.
On Nov 21 07:02 PM cubanstockpicker wrote:
> Citi will not go down for the simple reason that the petrodollars
> from the middle east will gobble it up. They have borrowed citi tons.
> Citi is already positioned as a global banking firm with larger interestes
> outside of the US. In fact, Citi reported that they were seeking
> 250,000 protection from the FDIC. Citi will be owned by the middle
> east.
www.economicsjunkie.co.../
It wasn't the short sellers who told Chuck Prince to run dozens of unsupervised businesses, levering and blowing through billions of company capital. It wasn't the short sellers who told Citi to go boldly into the CDS markets, move the assets off balance sheet, announce to the world they wouldn't be bringing them back, then doing so. It wasn't the short sellers that blew up Pandit's hedge fund, had Citi make the investors whole, then name Pandit CEO. It wasn't the short sellers who sold investors billions of dollars worth of Auction Rate Securities, then let them blow up. It wasn't the short sellers that disclose, month after month after month, more exposure to toxic assets than they acknowledged previously. And it wasn't the short sellers that paid Robert Rubin $15 million a year to jet around the world with a cup in his hand, borrowing all he can at 13%.
Game, set, match.
It's the off balance sheet nuclear waste that is going to be Citi's undoing, no matter what else happens. My guess is that there are other banks with dead bodies in the basement as well. Only time will undo this mess.
Why are JPM, WFC, and BAC suddenly became "superbank" like C in a matter of few months if the Citi model of "one-stop" bank is a failed model?
The US has now 4 giant banks capable of providing megamall type of banking and financial services to the whole world instead of just Citicorp before Sept 2008.
Citi needs a capable captain in order to compete in the global marketplace of the future with JPM, WFC, and BAC.
Why financials? Are they not in big trouble as of today?
I believe the US and Europe have a changing of the guard. The old boys are now retiring and the baby boomers are already in their 50's and 60's. So the baby boomers are taking over the mantle in the banking and finance sectors. Likewise, the baby boomers have lost their enthusiasm for technology and was replaced by the desire for money, power and recognition which politics, banking, finance, insurance, and housing can provide
Those western baby boomers grew up in the environment of technology during their 20's. 30's and 40's during the 1980's and 90's. The technology revolution is known for its daring and risk taking attitude - so what do you expect when those reckless baby boomers start taking over the banking and finance system? Do you expect them to listen to the old guards on the "safe and tested" ways of running a bank? No; they were so used to inventing new ideas and experimenting or finding the limits of those new inventions. That was basically what they did with mortgages, CDOs, and CDSs - they invented new ways and means on how to use them then tested their limits. The results were catastropic when measured in trillions of dollars.
They learned their lessons the hard way.
But the facts remained - we now have a global marketplace with the developed world and the developing world becoming more and more interdependent specially in banking and finance.
Credit has been used, expanded and abused during the last few decades in the western world. But it is not going to disappear. It may contract in the West but it is going to be expanded in the developing countries where billions of "new" baby boomers are going to be the consumers of the future making the consumerism boom of the west during the 80's, 90's and 2000's pale in comparison.
Likewise consumerism in the western world is going to contract since most western baby boomers are going to enter their retirement age in the next few decades.
The United States has the distinct edge in banking and finance over the European counterparts. With the support of the govt which is going to be much more controlled by the baby boomers in their 50's and 60's; banking and finance is going to be the major economic focus for the US in the next 20 to 30 years - not consumerism or technology.
It is going to be a race for global finance and banking supremacy among JPM, WFC, BAC and Citi if Citi survives as a superbank after this current crisis dessipates.
The developing countries with their billions of baby boomers in their 20's, 30's and 40's are going to spearhead the next revolution in technology and consumerism.
Its an age thing, you know. We can call this western financial crisis as an age transition crisis instead.
On Nov 21 11:47 PM slickvguy wrote:
> Another jerk piling on. (Disclosure: not long or short C).
> This is a big part of the problem. People on the net and TV yapping
> endlessly about things they know nothing about.
DIE, Citi, DIE, DIE, DIE!!!
All global banks - becuase Citi has nothing to do with US anymore, it's the quintessential globalized corporate entity on its own - acted truly dispecable in the past 10-15 years but Citi is THE MOST DISGUSTING PIECE OF LOANSHARKING, LYING, CHEATING, utterly rotten PoC institution.
DIE, Citi, DIE, DIE, DIE!
- Conditional guarantee on $306B in assets, presumably designed to mostly cover their riskier derivative positions at a price of $7B in preferred stock paying a coupon of 8%. Given that C's two highest yielding preferreds already pay a coupon of 8.125% (CpP) and and 8.5% (CpM), this appears to be quite a deal for C in terms of added dividend liability.
- C's added liabilities at this point, to attain this much of a guarantee, comes out to around $329 million per year (8% * $7B).
- Someone correct me if I'm wrong here, but I believe that the CDS spread on C was in the ballpark of 470bps on Friday. Thus, purchasing that much of an unconditional guarantee on C's debt would've cost roughly $14.38B on the open market; being that this is a conditional guarantee, C needs to absorb $29B before coverage begins. Just between C's $24B loan loss reserve allocation and the $25B TARP to drawn on, it seems likely that C could reasonably absorb the full $29B without much trouble.
- Now, please, someone offer their insight with regards to the financing provision. Every which way I read it, it seems as if the government is extending a guarantee on the REST of ALL of C's assets, beyond the $308B troubled portfolios, in the form of a non-recourse loan @ OIS + 300bps with the same 90/10 loss sharing terms. Given that the overnight rate has been averaging in the ballpark of only 30-50bps this past month, this again seems
curious. If I'm not misinterpreting this, it would appear as if they're getting an extremely generous credit line that, maybe given its terms, the USG doesn't expect it to tap into.
- C keeps the income derived from their assets in the guaranteed portfolio, designating the risk weight to 20%. Since it's unknown how, in light of what's happened the past year, to what extent C has re-weighted the risk in those portfolios, and there's no better risk weighting than 20%, this should help free up much of C's capital tied down to those assets.
- Preferreds are agreed to be redeemable in either cash or stock, so this should have no negative impact on the share price beyond the added liability from the new preferred issuance. That liability seems to be explicitly covered in a prudent attempt to minimize backlash from the public, demand further cost reduction, by requiring an almost complete cut in its dividend which had been, @ $0.16/share, a quarterly expense of $872 million based on the 5.45B shares outstanding.
Very wisely, more stuff cooked in to placate an increasingly irritated
taxpaying public and demonstrate that this deal is not 'for free':
- C's obligation to reduce its divdend to $0.01. It will be seen on Monday how this affects C's commons. Considering that the rationalization for the steep plunge through the last trading sessions was primarily due to concerns of solvency with no expectation that the yield be maintained, I don't imagine this should negatively impact the share price too much. In terms of net impact, it should be negative clearly, but overall much of the price depression was a bet placed on the solvency question.
- An interesting throw-in was the 10-year warrant for $2.7B @ $10.61/share. A fairly transparent attempt to elevate C's share price, it will likely yield some positive impact to C's common, but probably by not much. But it does offer the very clear message that USG will not hesitate to profit heartily by offering its assistance.
- Place executive compensation under oversight by the USG. Nothing new from the TARP.
Overall, I think that the terms in this package appear to have been thought out a bit better and though the terms are less attractive than with the original TARP, its impact is comprehensive and far clearer. My guess is that this will likely remove any remaining doubt as to C's short and long-term solvency.
I am curious to see how the recent consolidation of the industry will turn out.
Is Bank of America destined to spin off Countrywide and Merrill amidst brighter days?
On Nov 24 11:28 AM kamm wrote:
> VERY WELL SAID!
>
> DIE, Citi, DIE, DIE, DIE!!!
>
> All global banks - becuase Citi has nothing to do with US anymore,
> it's the quintessential globalized corporate entity on its own -
> acted truly dispecable in the past 10-15 years but Citi is THE MOST
> DISGUSTING PIECE OF LOANSHARKING, LYING, CHEATING, utterly rotten
> PoC institution.
>
> DIE, Citi, DIE, DIE, DIE!
It has $2 trillion in assets. It holds 185 million credit cards accounts which were piling up bad debts PRIOR to the global financial crisis (bad debts were up about 67%) and outstanding accounts over 90 days were skyrocketing. Back in August it was suffering from mortgage defaults and it still has at least another $200 billion in mortgages on their books and who knows how many of those will be in default. However, this is the minor part of the problem. Per the US Comptroller of the Currency on 30 June 08 Citibank NA (the primary banking unit of C) held $37.1 trillion in derivative bets.
These bailouts only make it appear that there is some sort of hope but the major financial institutions in the US are badly in debt and teetering on collapse. Don't be surprised to see institutional investors fleeing C if they have not done so already.
On Nov 21 03:36 PM jack dee wrote:
> would you be short perhaps?
What kind of people do you think we vote in to public office? Never mind that question.
You are right.
If we don't put consequences on buying stock we will never recover. Negative reinforcement is the best method of regulating companies and holding CEOs responsible. The people buying into the market must have confidence in what they purchase. How will this assurance ever be possible ? These people who lie and ruin American business have to be discredited and punished. Bernake, Paulson, Greenspan, Volker, Giethner, Frank, Pelosi are not experts and should be dismissed. Why are we letting these people fix Wall Street ? These people have proven their incompetence yet we let them continue running things. Why ?
The greatest joke was the congress giving the car companies a tongue lashing about excesses and accountability !! Reeeeeeeaaaalllllly.
These A-hole spend more than they make...how big is the deficit ??
500 trillion zillion ?
Those execs should have told Frank : 'Nice job there with Fannie and Acorn'.
Not only is Citi not dead, it has doubled since my post.
Shorts are fighting the Fed. Don't get in a money-watering contest with the people who can print it.