Citigroup Sees More Hedge Fund Troubles

Citigroup (C) said it has provided a $500 million line of credit to support some fixed-income hedge funds, and as a result moved the funds’ $10 billion of assets and liabilities onto its balance sheet.

The Falcon funds are managed by the largest U.S. bank’s alternative investments unit. Citigroup said that by providing the credit facility on February 20, it became the primary beneficiary of the funds, and thus must consolidate them onto its books.

On February 15, the Wall Street Journal said Falcon Plus Strategies lost 52 percent in the fourth quarter, its first three months in existence, after making bad bets on mortgage-backed and preferred securities, and trades based on the relative values of municipal bonds and U.S. Treasuries.

Down 52 percent in its first three months in existence! Stick to your knitting, please.

Sources:

Citigroup provides $500 million credit to hedge funds
Citigroup Leveraged Fund Falls Amid Bond Market’s Volatility
Citigroup Hedge Fund : Exit Door Closed
Citi SIVs “Rescue”

Comments

[jrblackie]

Losing money like a dam with a hole in it. And other news says Citi is going to lower its dividend again. How in the world can this stock stay above $20 is the magic question. Other news also put Citi at $16 in the near future.

[pickaroonwyo]

Just a layman here, but this sure points to capital ratios.

Banks take more risk onto balance sheets and have less reserves. Then banks lend less, and have less cash flow. Bank stocks decrease, and there is less capitalisation of macro economies.

This leads to a general credit contraction and resultant recession. It's necessary to shake off failing business models before a restructured economy can emerge.