Christopher Whalen

Can Citigroup Be Restructured Without an FDIC Resolution?

To first comment, you need BK to get this done quick. Can't manage the creditors w/o the power of the bankruptcy court to restructure the entity.

If we don't resolve C, them we have to subsidize the bond holders. Big $$$. And I think that Lehman is the model if we want to solve the problem. Otherwise we muddle and stagnate.

Can Citigroup Be Restructured Without an FDIC Resolution?

Oy. Another blog editor to figure out. Thanks guys!! Can we go back to the old system please?

In Memory of Greg Newton

I never met Greg but really appreciated his work. En paz descanse!

AIG: Before Credit Default Swaps, There Was Reinsurance

What may be wrong with the FAI-HIH letter is that is suggests that the reinsurance was not a true, risk-shifting transaction. It suggests, IMHO, that the reinsurance was a canard meant to window dress the financial statement of the purchasers of protection. Good questions.

Is Goldman Tempting the Interest Rate Black Swan with 1,056% Risk Exposure?

First, good analysis. Only quibble is that the non-CDS exposure in OTC is essentially a forward market that tracks the cash basis. The size of the outstanding positions IS an issue, but only because many dealers are rotting from the inside out due to CDS. CDS is a sophisticated form of criminal financial fraud, IMHO.

GS has always been among the most highly leveraged Wall Street firms. In fact, as of year-end 2008, GS and MS had higher stress scores, including the OTC book, than almost any of the money center banks other than C.

Here are the Stress Index scores for the top banks as published by the IRA Bank Monitor. When MS and MS finish migrating their institutional business "in the bank," these stress scores will probably go higher. The Stress Index is based on 1995 = 1. The maximum score is 100, which is two orders of magnitude above the industry stress average. -- Chris

Industry 1.77
JPM 1.3
BAC 1.61
WFC 1.47
C 21.6
GS 20.6
MS 20.43

Living in the American Mafia State

Here's one of my Mexico rants from the WSJ in 1992. I used to kick the stuffin out of Carlos Salinas for being the head of "the perfect dictatorship." See below. Made the Bolsa drop 5% in a single day. ;)

www.rcwhalen.com/pdf/w...

Now we are the leading example of the Mafia State.

Living in the American Mafia State

Actually the politicians in DC are the Mob. The banksters are the owners of these criminals.

Taking Apart Jake DeSantis' Letter

Ditto

Banks Stressing the System vs. Potential Winners of the TARP Repayment Race

Tyler:

Good piece. You sure that the T1 capital series in the chart is correct? Tier One Risk Based Capital excludes many but not all intangibles. Are you subtracting the remaining intangibles to get tangible common? For example, Citi has $30bn in total intangibles in the lead bank. $20b is disallowed as part of T1 RBC. But there is still $10b in intangibles in T1 RBC, so I take out the remaining items.

Chris

US Bancorp: The Other Big Bank with Big Problems

Note sure that USB, WFC are good indicators for rest of the industry. We rated both of these banks "A" as of Q3 on our soundness ratings, but expect both of these names to weaken in 2009 along with the ROTW. With WFC, the issue is Wachovia. With USB, let's see how the charge-offs look in Q1 then we'll know how much to put USB with the big zombie banks. Bottom line is credit culture and how quick these banks are willing to clean house. Right now, some of the nasty looking situations are actually righteous, while turkeys are still hiding among the "above peer" banks. Picking the righteous and avoiding the turkeys is the trick right now.

Is Bank of America Actually Behind Citigroup on the Problem Bank List?

Agree on FVA. After got of BB TV yesterday, David Reilly (formerly WSJ editorial page) came down and declared my road to Jerusalem coversion after I conceeded that FAV helped deflate the bubble more quickly. Oh boy. The impact on valuation of financials due to FVA is clearly negative now, but the lunacy will work for the longs when credit conditions start to bounce. The thing which bothers me is how affected assets or income due to FVA helps the investor. I don't believe that it does.

Big Banks vs. America

No, actually BCS is the custodian, the holder in
"street name." The beneficial holders are the millions of BCS custodial customers. ;)

Netting Derivatives: Slippery Slope Marred by Opaqueness

Good comment. The last several graphs are especially important. I still do not think people appreciate how entirely screwed up CDS contracts are as an insurance/barrier option type offering. In plain vanilla, single name CDS, we are pricing the obligation to fund par less recovery on a corporate bond default, but we price this risk vs. short-term spreads and volatility!!!

Then there is the correlation problem. Unlike ship sinkings and earthquakes, traditional low-beta insurance risks uncorrelated to the economy/markets (and, indeed, were a hedge to the economy/markets!!!!), CDS is high beta and thus cannot really be hedged. Even a very broad portfolio of such risks will still go to hell in a severe downturn such as we see today. CDS does not manage risk, it creates risk in vast amounts in order to generate commission income for the CDS dealer community.

That is why I believe that clearing is not really the issue when it comes to "fixing" CDS. I think we need to abandon the ISDA model, which was copied from the IR/FX template, and look at more traditional insurance type models and capital/collateral levels before CDS or its successor make sense and thus gain investor support

Kovacevich's Delayed Retirement: Bove's Criticism is Totally Off Base

Ditto. What is the deal with Dick Bove and the FT? If the CFC BOD wants Dick Kovacevich to stay, he stays. This is one of the best run banks in the world. What is the issue Dick?

I have never understood mandatory retirement rules. People like former Fed Chairman Paul Volcker or former GAO chief Chuck Bowsher are both over the mandatory retirement age for most corps, but I'd have both of them as directors of my firm tomorrow.

FDIC Won't Run Out of Money, But WaMu May Be Toast

Thanks for the comments. People who call people names, and don't have trhe courage to use their real names, usually are beneath contempt. When I put up a post, I used my real name so you know who is talking. People who hide behind screen names are cowards and have no credibility. That said, I understand that folks are under the gun this week.

Bottom line on WaMu: 1) how high does the loss rate go and 2) how long does it stay there. WaMu is already 2x peer in terms of loss rates w/o the rancid Providian credit card book. Add the cc book, which is around 1,000 bp of default now, and life gets real interesting. That is why I expect WaMu to be recapitalized by Uncle Sam.

Sleep well kiddies.