Angry Banker

Why Dick Bove Is Wrong About Citigroup

So may I assume you have placed a massive short trade on Citigroup because of your brilliant insight that it will fall to 75 cents?


On Dec 17 09:36 PM Fitz919 wrote:

> Citi will soon be a 75 cent stock, and won't be able to find a rock
> to hide under. It's exposure to failed mortgages, and failing credit,
> puts it in the catagory of the worst of the worst. If you only took
> the Home Equity Lines of Credit which are now valued at zero, and
> actually placed those losses on Citi's books, the FDIC could haul
> off what's left of Citi in a single wheelborrow. Maybe Citi should
> simply go green right now and turn out the lights....I'm sure Obama
> would give Citi a big fat tax break.

Why Dick Bove Is Wrong About Citigroup

What everyone has failed to recognize is that Citi has already announced it will honor the pay czar's mandates for the 2010 pay period, even though they technically don't have to. In other words, paying back TARP was not so they could increase compensation for employees. It was to remove the government from meddling in day-to-day operations and to remove the brand of "too-weak-to-survive." The dilution was going to happen sooner or later anyway. So let it happen now, get it out of everyone's system, and move on.

The Big Banks' Reprieve from FDIC

Citi, even after paying back TARP, will still be one of the strongest capitalized banks in the industry. Obviously they thought about the implications of bringing the off-balance sheet assets onto the books before agreeing the terms of the TARP repayment. Remember, Vikram Pandit is taking $1 per year salary and no bonus until Citi returns to sustained profitability. He's highly motivated to get this right.

Obama and the Bankers - An Imagined Conversation

This was quite funny, but back in reality-world, Citi has actually lost many talented bankers. And no they were not the ones who caused the meltdown (those guys were fired back in 2007 and 2008). The bankers Citi lost in 2009 left because they could get paid better elsewhere. And other firms did pay more because those bankers knew how to make money for the firm. Not a smart move by the government to force those guys out.

Majority of U.S. Banks May Suffer as Citi, Bank of America Near TARP Payback

Just one point, Ford didn't receive government assistance (except indirectly through the cash-for-clunkers program). Chrysler and GM did, but Ford ultimately decided against it, so when consumers decided to buy cars (albeit it some of it prompted by cash-for-clunkers), more went for Ford than the other two because Ford was perceived as a stronger company. Of course the stock has subsequently performed stronger too.


On Dec 04 04:38 AM Daniel Harrison wrote:

> bbro: I think the point of view you are expressing is what most market-participants
> assume to be the case, but I think it's wrong. Treasury's enormous
> fueling of corporate debt amounted to nothing less than a huge leveraged
> pump-priming of the assets where its money was focused.
>
> To further prove this point, take a look at the performance of other
> TARP recipients, such as Ford (F). Is it likely a near-bankrupt motor
> car manufacturer with rapidly declining sales would have surged over
> 700 percent in value this year without some kind of artificial catalyst?
>
>
> When you put debt into something, whatever it is, you amplify the
> potential returns and the potential losses. If, as the U.S. government
> did, you then declare that there is a bottomless pit to the amount
> of cash you have on hand to keep meeting the margin calls (which
> it did by reducing interest rates to zero), the asset is only bound
> to surge in value. In this sense, investors were acting rationally
> to information available to them in March. That's a somewhat different
> story today, as the U.S. has to watch the purse strings in case of
> a default (as evinced by widening credit spreads on government bonds).
>

What Happens to Citibank's $8 Billion Loan to Dubai?

Was this loan to the company Dubai World? Has it already been paid? Do you know terms of the loan?

This kind of article is complete sensationalism at best. Citi has already stated it has no material exposure to Dubai World. Why don't you do some research before throwing garbage on the wall to see if it will stick?

Where's the Outrage at the Banks?

Banks do not make more money through foreclosure than through people repaying their loans. If they did, then the banks would not have lost so much money the last two years.

Banks make money by taking prudent risks and receiving fair compensation (e.g., interest and fees) in exchange for taking those risks. Unfortunately they did not take prudent risks and lent money that they should not have lent, because the borrowers did not have the ability to repay. And then their second line of defense, foreclosure, also failed because the underlying assets collateralizing the mortgages were not worth what as much as when they made the loans.

Diana Farrell And The White House Theory Of Bank Size

Nice idea, but with a law like that, none of our Congressmen would have anything to talk about.


On Oct 13 09:21 AM Ferdinand E. Banks wrote:

> Interesting, very interesting, but I know one thing about so-called
> "big banks". That expression will never be mentioned in a classroom
> of mine by anyone who desires a passing grade - although instead
> of failing them I might just tell them a few things that they don't
> want to hear. Even so, I think that Michael Clark has a good idea
> when he says that some new laws are needed. The first new law should
> be one designed to stop people from talking about things that they
> know absolutely nothing about.

Bankster Sues Bankster, Again

Thousands of super secret "side letters"? Sounds like a good story for an Oliver Stone movie (or maybe Michael Moore?). Do you have evidence of even a single actual "side letter" that you describe or is this just another example of creating a conspiracy theory from fantasy?

Too Big to Fail - Everyone but Washington Knows What Needs to be Done

Smaller and more focused on core banking is the right solution for companies like Citigroup. In fact, even though this direction has not been officially mandated by the government, it is actually what Citigroup is doing. It has divested dozens of "non-core" businesses since Vikram Pandit took over. It has reduced expenses massively and it has sharpened up its risk management in its core businesses. Now if Bair would just leave Pandit alone and let him finish the job he started in December 2007, Citigroup may again be a valuable company one day.

The Real Deal with Ken Lewis

Personally I wish CEOs of financial institutions were compensated in direct proportion to the growth in the price of their stock. Of course it has to be measured on a sufficiently long time horizon as well (to mitigate taking extraordinary short term risk in order to boost stock prices temporarily). If such a compensation system had been in place at BAC, C and others, the prior CEOs would have been gone much sooner.

Is Curbing Bank Pay Socialist or Capitalist?

The implication that banks are getting out of jail free is ludicrous:

"American banks are currently allowed to gamble with other people’s money. They are given dirt-cheap funds by the Fed. They loan it out at a higher rate, pocketing the difference. If and when these loans go bad, they’re bailed out with even-lower interest rates, or outright cash-injections."

The above is not correct - the TARP funds charge a punitive interest rate of about 8% far higher than the banks were previously getting on the open market. As for cash injections, these were in the form of preferred or common stock purchases. Should the stock prices go up (which in most cases they have dramatically), the government (taxpayer) can and will reap huge returns.

Additionally you say:

"Taxpayers should gain something for the risk they take. Banks need to drastically slash costs, cut bonuses, dividends, payroll, etc."

Fact is that banks receiving "extraordinary assistance" under the TARP program are by law now required to address all these points. They can no longer pay dividends until TARP is repaid, bonuses of the top 100 execs are under strict scrutiny by the so-called "pay czar" and expenses are the major companies are way down, almost 25% in some firms.

It is true however that banks benefit from government support. But in return for their FDIC guarantees (which they also pay for through FDIC insurance), regulations require massive amounts of lending in areas that would not be considered prudent if the banks were using their own money. So when banks fail because of compliance with government mandates on lending under the Community Reinvestment Act, HMDA, HOEPA and other so-called "consumer protection" laws and regulations, then it is not necessarily unreasonable for the government to come to the banks' aid.

Lastly, one more point on executive compensation -- in many of the firms (not all I grant you), much of the upper tier was swept out after the financial crisis began and the new management should not be held accountable for the failures of the previous execs. If this new management performs well and returns the banks to sustained profitability, they should be well compensated for their good work.

Ending the Off-Balance Sheet Charade

I too would like Mr. Winkler to provide us real world examples of banks inflating profits at quarter-end by selling assets at a gain to off-balance subsidiaries. Accounting rules would not recognize such a sale as a "true sale" and the bank would thus not be able to recognize the gain.

Separately, how should we interpret your diatribe in terms of investment advice? If SA is a site to share views on investments, this article is sorely lacking in direction.

Does True Competition Among Credit Card Issuers Exist?

Why does everyone say credit cards are not transparent? Read the disclosures that came with your card and everything you need to know is there. Problem is, most people are to lazy to read all the fine print (or in too much of a hurry to go out and max out their cards), and then after they make a late payment they get pissed off when the card company raises their rate or charges them a big late fee. But I guarantee you that the conditions that cause that rate increase or late fee are spelled out in the contract. And its not the credit card companies' fault that there is so much fine print. It's lawyers and consumer advocate groups that have caused the terms and conditions to become so voluminous.

Gone Nowhere in 8 Years

Is this an investing site or a place for place for whiners to complain about the governments they have elected (both Republican and Democrat)? What's the lesson for readers to learn? My takeaway is that you should watch for bubbles, invest on the way up and get the hell out when they pop. Try this same analysis from September 2002 to September 2007 and the headline would have been "Doubled in five years".