justcurious

Citigroup's Derivatives Reduce Bailout to a Non-Event

Any specific reason to believe the writedown to turn around? Spreads could stay at the high level for a long time. Defaults could meet or exceed the level implied... What then? Another down draft? More bailouts?


On Jan 04 07:09 PM Gtarras wrote:

> Has anybody thought about billions in write-UPs for the big money
> center banks which are coming when spreads start to tighten? The
> tightening is already underway..
>
> "the rescue plan fails to address the potentially disastrous impact
> of a crumbling derivatives portfolio in the face of a rapidly deteriorating
> global economic environment"
> +
> "Citigroup’s exposure to credit derivatives stood at $3.2 trillion
> (notional value)"
>
> I do not have a position in Citi (or any other bank), but looked
> at Citi's CDO exposure earlier last year. The biggest chunk of it,
> as far as I remember, were super senior tranches (both ABS and corporate).
> These exposures tend to give you the wild swing in earnings (because
> of their sheer size), due to FASB 157 rule. Well, when spreads widen,
> Citi's earnings get a horrid MTM hit because of the exposures.<br/>
>
> Watch out when the spreads reverse the course. All this false write-downs
> will be becoming write ups..
>
> I am thinking to go long UYG.
>
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