Financial Times Debunks Citi's Memo 50 comments
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Good read on the purposefully leaked Citi (C) memo today from Financial Times. The Brits make a good point about Citi's so called bumper revenues, which a) are not bumper at all based on historical standards and b) are to be expected as increased revenues always accompany volatile markets, especially in f/x and cash equities. The main thing Citi did not provide info on is the impact of writedowns, which one can bet their bottom dollar will be large to quite large.
Citi having a bumper top line is nothing to get excited about. That “profitable” remains unquantified gives no comfort as to what extent writedowns have eaten into that haul. Provided the global economy keeps deteriorating, and house prices sink lower, balance sheets may fail even harsh stress-tests. It remains a brave investor who believes that this time bank revenues can overwhelm the writedown bogeymen.
The FT also has a beef with two other concepts brought up in the letter: that depositors and investors are, contrary to fact, not fleeing in droves, and that Citi has a strong capital position. Of course, the $81 bn in TCE only materializes assuming the government extracts its pounds of flesh, which would not have been necessary if the asset side of the business wasn't an ice cube next to a flamethrower.
Another question is how much of this blockbuster revenue was due to the Smith Barney brokerage? Citi was forced to sell half of this unit about a month ago, and thus any associated revenues have to be chopped in half for a true pro forma representation, else Citi is double counting the income statement and balance sheet benefits.
As more impairments have to be taken, higher and higher tranches of the capital structure will likely become equitization candidates and thus sources of incremental stock dilution. Lastly, to assume that BofA (BAC) and Wells Fargo (WFC) are immune from C's cancer, is as naive as rampant stock purchasing based on a 1 page letter of unsubstantiated propaganda.
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This article has 50 comments:
Can we let the banks try to heal for a while?
Can we focus our attention to trying to rebuild what we allowed a few to destroy?
"Can we all just get along?"
This is a rant from a short-seller--
Also, dude--Do you expect anybody to take you seriously with that "picture"?
On Mar 11 07:04 AM apppro wrote:
> Can no one let it rest already?
> Can we let the banks try to heal for a while?
> Can we focus our attention to trying to rebuild what we allowed a
> few to destroy?
>
> "Can we all just get along?"
Kind of jealous of your name/photo. Thanks for bringing up something that should have otherwise been obvious to me. Its nice to hear words of insight when others just parrot a hope that the markets will rebound if we all just wish hard enough.
Far from "debunking," the FT has built a case against, the case "for" is quite strong as well.
Look at the Chinese stock chart- they do not allow short-selling. Same crash.
On Mar 11 07:26 AM aj57 wrote:
> Right on Apppro, articles like these bring down the investor sentiments
> more and who benefits in the end ? the short sellers, day traders
> and the analysts like Meredith Whitney who played a major role in
> bringing down Citi's stock.'Fundamentals don't count anymore and
> good news is no more good, no matter what.
"It's all amoozin, but so confoozin".
Citi may not be the bulwark it once was. A book to assets ration of 1.52 proves that point. FT just said that Citi internal memos may not be the most reliable source.
Unraveling the derivatives, CDOs, CDSs, and correcting the market valuations legitimately ought to be a rallying point for all of us. That would be cause for celebration.
Citi and 4 other U S banks have 175 trillion in derivitives on the books......never hear it mentioned do you? Don't you wonder why?
go here and verify for yourself
OCC's Quarterly Report
www.occ.treas.gov/ftp/...
I, myself, would not put any of my money into C. Oh, I forgot. The government already put my money into C. As an investor, therefore, I want the company to do well, but even more, I want to know the true state of their enterprise.
Regarding this article and the C "story" yesterday, I have no idea what the truth is. That's what I'm seeking here. From my vantage point, C's management has not earned my trust. They have the burden of proof when they express optimism about their company.
Citi needed a boost in balance sheet for the 1Q, they got it. Won't change reality.
The banks are behaving all rosy to disconnect suckers from their money and to try and get the Feds off their butts and out of their payroll.
None of this changes the underlying problem of the world economy and it isn't subprime (though that is making this much more painful).
But, keep playing ostrich and ignoring the 600lb gorillas (yes plural) that are tearing the foundation out of your homes.
Thanks for a good article, sorry the sheep won't listen-get used to that, public education & liberal higher learning strikes yet again.
He didn't write the FT piece...
Trouble is, no one knows, possibly including the regulators.
If Tyler wants grownups to lend attention to what he has to say, he should learn to express his thoughts in English. His writing is execrable, a word which should send Tyler to a dictionary.
Judging from his picture (and why shouldn't we, since he chose to post it?), and his writing, he has little of value to tell any investor.
As the saying goes, would you buy a used car from this man?
How much is it as a percentage of tangible assets? Given the asset composition, does this figure constitute a well-capitalized bank? At what level does Citi want to manage it going forward? Is it enough to pass Geithner's stress tests? Is it enough to withstand a downside scenario more severe than that being modeled by Geithner? If so, by how much? If not, how much additional capital would need to be raised?
Of course, this was only an internal memo so that may be asking a bit much. But if it was going to be leaked, I would have liked a bit more context around the TCE figure since it would appear to be unseating Tier I Capital to a large extent as the most significant measure of the adequacy of a bank's capital.
Did the Government recently become an investor in this bank? Did they give this bank a lot of TARP funds?
How Strange The World Has Become.
apppro, starwonder, yakov, aj57, shii, oceansmike - I do not believe you would survive long in the land of the lions. You apparently would not want to discuss where the lions are and whether they are hungry. Safety Is A Function Of Awareness. Information Is King.
Fantasy Will Not Help Turn The Teeth.
Reality Will Be Reality Whether Believed In Or Not.
I noticed you have a grand total of 7 comments amongst "all" of you.
And, coincidentally, you "all" have the same opinion.
I'm sure it is just a coincidence, though.
I've been telling people this for the past year that any position in Citigroup (short or long) is PURE SPECULATION. Frankly, I wouldn't touch Citi with a 10 foot pole until we get some clarity into its true exposures. I don't care if I miss out on a 1000% capital gain.... I don't gamble.
On Mar 11 07:09 AM starwonder wrote:
> This is not analysis--
> This is a rant from a short-seller--
> Also, dude--Do you expect anybody to take you seriously with that
> "picture"?
Let's see, the CEO sends employees a memo overnight (non SEC document) claiming profits, said memo is immediately leaked to Wall Street, and any employee who bought at the open on Mon. gains 20% in a day and a half. They would have made 10% just by buying at the open and selling at the close.
Let's hope that none of the insiders who bought 7.655 MILLION shares on March 2-3 for less than the current price have sold any of that stash. They're up 23%. Let's really hope there were no preplanned sales that just happened to be scheduled to execute that day.
Good info to consider. However, the existence of derivatives on their books SHOULD have been evidence that the banks were doing their jobs and covering their risk exposure. If they had just done that, they and so many of the insurance companies would not be fading into oblivion right now. The number perhaps more telling in that report wsa the amount of their credit derivative contracts ($16.1 Trillion)
Swami wrote:>
> Citi and 4 other U S banks have 175 trillion in derivitives on the
> books......never hear it mentioned do you? Don't you wonder why?
>
>
> go here and verify for yourself
> OCC's Quarterly Report
> www.occ.treas.gov/ftp/...
I think the FT article is right, its highly suspicous that this was an internal memo not an official trading update. I suspect it was to avoid an SEC probe if it turns out to be BS.
Interesting readers don't like your photo Tyler, looks like they only trust men in suits....like Madoff...
three letters; fas
fcw
The author wonders how much of the revenues are generated by Smith Barney.
I can give you a pretty good approximation: annual revenue for Smith Barney last year was about $7billion, which represented about 5.5% of total Citigroup revenues. Assume that the company is lying, by double-counting Smith Barney (seems crazy to me that they would be so stupid), and they may have over-reported by around three percent. Doesn't seem like a big deal, does it?
By the way, this is the same author who told us two weeks ago that the Citi preferred shareholders were going to really get screwed, possibly only getting two or three shares of common per preferred share. Correct number is 7.3. Could be that he writes first, and researches later.
> As the saying goes, would you buy a used car from this man?
Would you invest with the well-dressed Madoff?
Shallow impressions make for poor investing.
But bulls don't be too disappointed, the rally was not really because of Citibank. It was mostly short covering. I guess they decided they had a good enough run. We can now see if we are going into another trading range.
By the way Tyler Durden has been a frequent poster and is respectable despite what some may say. Let's debate facts not pictures please.
On Mar 11 08:38 AM monday1929 wrote:
> Yes, it was all Meredith's fault. Direct your anger at the Banker/Politico
> Criminal who commited these crimes.
> Look at the Chinese stock chart- they do not allow short-selling.
> Same crash.
Have anyone ever realize the Dow Jones is already in the seventh month of unrelenting sell-off? Do we really understand what are the implications of the spiralling unemployment rate? Can we hold on to this temporary ledge by which our very own survival hangs moment by moment?
What are we doing in the meantime. Discuss this and that. Everything we discuss now are basically moot and academic. Does it really matter if one is correct and the other is wrong? Will we be able to get out of this hell hole by analyzing and discussing every dirt and trash we can find? Should we be looking for more trash we can puke on?
Should we not be asking for somebody to lead us out of this hole? Show us some light no matter how dim or short-lived that lightbulb can be, at least we have a chance to find our way out of this nightmarish labyrinthian hell hole we dig ourselves in.
If our current leaders are not up to the task, we might as well start asking them to show us some credible backbones. We need leader(s) who WILL lead not talk us to death that we CAN do this and that IF and only IF yadda yadda IFFY yadda.
Baby steps constructively laid out can lead us to bigger ones we cannot see at the present stage.
Let's start "discussing" what we can "constructively" do at the shortest possible time.
Anybody?
I already have contributed some in my previous blogs of Oct2008 to Mar2009. Many more did the same. More will be needed until it becomes overwhelmingly evident we actually need positively constructive credible ACTIONs.
When Tyler goes further, though, and talks about "One main thing Citi didn't provide information on is the impact of writedowns, which one can bet their bottom $s will be large to quite large", he weakens his point. He starts out objectively, but then concludes with an unsubstantiated, unquantified forcast of writedowns. While he could be right about Citi, he resorted to hyperbole.
Hey, the more burning issues in bank analysis are the quality of and management of assets, adequacy of reserves, and capital and liquidity cushions against tougher-than-forcasted economic scenarios. And certainly lets not forget figuring out the risk profles of counterparties in the derivatives books, especially CDSs. Indeed, there are vast differences in the major banks and large regionals on these points. I expect and hope Treasury in its lengthy work will bring us up to date and clear the air in the coming couple of weeks.
Long C
Not only Citi, a few more big banks have shown hefty revenues - about 50% is the net profit - in the last two months. Also, there is a widespread belief that FASB will suspend the mark-to-market accounting for Banks and Insurance Co very soon, since the market is terribly frozen. I wish they do it immediately. Plus, they impose the double-uptick rule and enforce the laws against naked-shorts.
Short sellers are having a field day! Speculators and short sellers are enemies of long term Investors, who worry about only quality earnings and sound management!
Time is now to buy/accumulate XLF.
I for one hope Citigroup hobbles through. The IMF had a report on counter party risk in the derivatives market with focus on cascading problems:
www.imf.org/external/p...
"...the Fed’s Balance Sheet as of April 23, 2008. There it can be seen that the U.S. Treasury securities (AAA) available were just above $500 billion after the $29 billion loan to JPMorgan for Bear Stearns. Thus the Fed’s balance sheet at that time was not big enough to absorb counterparty losses under Scenario 1, if more than one FI fails.Figure 9. Fed’s Balance Sheet as of April 23, 2008"
On Mar 11 07:04 AM apppro wrote:
> Can no one let it rest already?
> Can we let the banks try to heal for a while?
> Can we focus our attention to trying to rebuild what we allowed a
> few to destroy?
>
> "Can we all just get along?"