Citigroup: We Never Learn

“Education costs money, but then so does ignorance.” - Sir Claus Moser

Phew…only $1.66 billion. It was only a short time ago that a billion dollar payment would be a big concern. Remember back to the 1998 collapse of Long-Term Capital Management when an initial $1.8 billion hedge fund loss announcement led to a global meltdown? I suppose that was different as it was a decade ago and the dollar was worth a lot less back then.

The recent news of the Enron settlement by Citigroup (C) would normally cause a substantial stir and a marked concern by investors. But the truth is that this is a drop in the bucket compared to the real write-downs we are witnessing.

According to the International Herald Tribune:

Citigroup said Wednesday that it would pay $1.66 billion to the Enron Bankruptcy Estate, which represents creditors of Enron, the energy trader that engineered one of the biggest U.S. corporate frauds. With a trial scheduled for next month, Citigroup was the last of 11 financial institutions to resolve claims going back to 2003. Citi’s shares fell $1.37 to close at $22.05.

Ironically, the Enron collapse was also due to derivatives, leverage, and off-balance sheet arrangements. Sound familiar? I thought we had learned our lesson from that. The Enron, LTCM, and subprime are all the same animal, just in a different flavor. And, touching the hot surface has not helped keep us out of the fire as we (investors) are lied to over and over again and are apparently very stupid.

The most troubling news, though, is not that John Meriwether’s hedge fund is seeing record number of outflows related to a 28% loss in his Relative Value Opportunity fund has seen in 2008. Rather, it is that after the amazing loss and market turmoil caused by his last fiasco, his funds would ever see the inflows to begin with.

What do you think…have we learned our lesson?

Disclosure: No position.

Comments

[citiworker:]

Citi was last to settle, because we were having bake sales at all the various sites to scrounge up the capital. Starting in NYC where executive compensation is so over the top for the ROI, baked goods were for invitation only leadership. We heard that the chocolate chip and cup cakes ran a whopping $100,000 per plate. Far higher than typical celebrity functions. But considering that $1.6 billion is 16 thousand MILLIONs, do the math on how many baked goods were needed. The annual meeting is 4/22 and hopefully the shareholders will vote the pitiful excuse for a Citi board of directors out on the street.

2008 Mar 28 09:55 AM

[whisperonth...:]

Depends on what kind of cookies you're going to have....

2008 Mar 29 08:49 AM

[doog:]

Citiworker, I begin to see the depth of the problems facing your
mealticket. I'll gladly trade my $1.6B for your 16 thousand million.
Meet up?

2008 Mar 30 03:08 AM

[nukldrager:]

Crud. Now I have to get a new calculator. Between the lines math guess is that $1.6B<16 thousand million. Don't do it! doog gets $28.8B
Everybody doesn't get their cookies in this deal.

2008 Mar 30 11:46 AM

[nukldrager:]

Correction, doog only gets $14.4B. That's only half as bad...

2008 Mar 30 12:08 PM

[Fabien Hug:]

How much did you say?

2008 Mar 30 07:45 PM

[aptbroker1:]

My opinion of the US market is that nearly everyone involved are idiots. Citibank is going to lose almost 400 BILLION dollars, maybe a lot more, and their stock goes up 25%? I rest my case.

2008 Mar 31 02:28 AM