Citigroup Receives $7.5 Billion Capital Infusion
Submitted by
CalculatedRisk on Mon, 11/26/2007 - 9:35pm (113 comments)
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What's your guess CR? The fed window not big enough for Citi?
mmm "Sovereign Wealth". Some time this century there might actually be truly sovereign wealth funds, in that the funds live on computers like Wintermute in Neuromancer, and we poor slobs and our silly governments and armed forces have fallen into service to them.
All of this is a marvelous way for the savers in the world to get their teeth into large chuncks of Uncle Spendthrift. Buffett predicted it perfectly. Selling off pieces of the ranch to keep up our extravagant life style. I wonder when the Chinese will demand to chomp off some more pieces.
Jeez they must be desperate for money. That is a ridiculous hurdle rate for a money-center bank.
Desperate ain't the half of it; sink or swim it was.
Please explain to me why this is seen as positive. They are selling off 5% of the company and have to pay 11% to get the investor to come in. Isn't that more a sign of desperation than strength? What am I missing here?
Also, could this be a preliminary move to get the capital they need to cushion them when they take the SIVs back on the books? Again, a forced backs-to-the-wall move, not a choice.
I don't get why the futures markets spiked on this news. Granted they've come down somewhat, but they are still up. DJIA +81, SP500 +12.60. That's a pretty healthy jump and with nothing else to account for it.
chophouse, I'm with you. In my eyes this can only been seen as a sign of weakness.
I find this as a positive for the BEARS. Why didn't they go to the Window it is cheaper? Could this mean that Benny and the Boys turned them down? Why else go through the hoops and pay almost 3X as much for the priveledge?
All your money are belong to us.
dryfly, Citi clearly needed to raise capital. Their ratios are low - and they have more losses coming, and pier loans piling up, and - if the Superfund SIV fails - they might have to put the SIVs on their balance sheet. This was a needed move - although I'm surprised by the terms - clearly Citi is desperate.
Best Wishes.
chophouse etc., Imo this may be a negative for Citigroup shareholders because of the poor terms and dilution. However, it is a big positive for Citigroup bondholders and and a positive for the financial system in general since it reduces the risks of a Citgroup default.
The share price was already reflecting problems at Citigroup. This is a rational response to the problems.
This is not about Citi. This is about sovereign wealth deployment. Couple this with Phillips' purchase today, and suddenly managers have reason to buy.
Bears may wish to harden their stops.
vicjim:
did the B of A bailout of CFC end up positive?
you say it's a rational response. it's rational to try not to drown when underwater. 7.8 bil at usurious rates does not guarantee survival.
NY Times - Citigroup Sells Abu Dhabi fund $7.5 Billion Stake:
Citigroup to Sell $7.5 Billion Stake to Abu Dhabi - NY Times
Mark S:
NOT ABOUT CITI?!
Am I missing something here? Why on this planet earth don't they just stop giving out dividends to common shareholders and fund the shortfall that way. The last time I checked, common stock dividends are NOT A GOD GIVEN RIGHT. They are an option IF there is enough excess capital. If I were a common shareholder, I would be HOPPING MAD as these terms are AWFUL. Funding dividends with an 11% capital raise is just beyond stupid. Does anyone teach capital structure in Business school today? How could a company be soooooooooo dumb? Anyone?
that fat cat garfield (Citi) shipped his little happy buddy odie(Siv junk) to abu dhabi cash on delivery. how fitting! nikkei rockets 500 points on news!
dissident,
All your money are belong to us.
That obscure reference requires a video!
"A Replay of Internet Boom"
You have no chance to survive make your time.
3 Month Cisco Chart
On an earlier thread people discussed the line item preventing ADIA from hedging Citi. Has anyone considered that the Citi stake might itself be a hedge for ADIA?
Their revenue stream is oil, right? At ~$100/barrel, let's consider the options.
If $100/barrel is untenable for the long term, then the price has to go down. Falling energy costs are good for U.S. growth, and probably means that the FED lending rate will increase over time. Does Citi make out in that scenario? (Honestly, I'm not sure about that). But if the U.S. staves off significant inflation, then that 11% is a major score.
If oil stagnates at $100/barrel but Bernanke keeps core inflation in the 2-3% range, that's awesome for ADIA. Now they've got extra money to purchase U.S. companies and goods. Citi is probably stable and provides 11% in the meantime.
If Ben has to cut the FED rate towards 1% to stop inflation, again that 11% return looks pretty good. And cutting the rate so deeply might loosen up the credit markets and cause Citi to appreciate, which is a substitute for your capital. Your $/barrel probably isn't going up in price at that point, but it might not fall, either. And $100/barrel is a nice round number.
If $100/barrel oil starts to rise, inflation will probably climb steeply as well. But if your primary asset is oil, that's pretty much a wash. In that case, you bought a chunk of Citi with cheap dollars today, and your commodities cashflow will be paid in tomorrow's inflated dollars. Eventually Citi will pay down the toxic waste on their books, your capital converts to stock at a decent price and your books might be even (adjusted for inflation, of course).
x-man, I didn't say the money guaranteed survival. However, $7.5 milllion of capital sure increases the odds of survival. IMO CFC's problems are probably much more serious than Citigroup's.
11%?????????
ELEVEN PERCENT????????
That's an effective strikle in the twenties for some of this stuff! Either al-Waleed turned them down first or he's really, really ticked right about now at those terms.
I think a fair question is with a 6%+ dividend yield for C at the moment, the market clearly didn't expect the current dividend to continue. Why wasn't that a superior option to this?
U-G-L-Y
Brand-
You might be overthinking this. I believe only two options exist. 1) ADIA hedged their bet and are getting 11% risk free, or 2) The PTB told Abu to pony up some money to save C or the protection racket is up.
It's an inflation bet. If that $7.5 billion was sitting in t-bills earning 3%, perhaps it's better off deployed on an inflation bet.
If Bernanke does bailout citibank by pushing enough paper to rescue housing, it will be a damn good return, perhaps 15%-20% per year.
I can dig it. It's the percentage bet based on the Fed's history of the past 50 years.
Banker,
Ugly but Citigoup may think they may need this plus a dividend cut. In a risky world this may be good, but expensive, insurance.
Vicjim,
I assume they did this out of simple desperation. Someone went to ADIA and said "to do $5-10 billion, what does it need to look like?" ADIA said like this and Citi thought hard for about twelve seconds and said, um ok.
Tells me the writedowns they are expecting are bigger than we had supposed.
1 Examiners are crawling all over Citi a/k/a 1st Muslim Bank International.
2 Prince SmokeWeed facilitated the deal to save his multi-billion investment (which will fail).
3 Gretchen and others are going to spill lots of ink over the deal (which will be entertaining reading).
4 Primary regulators approved it.
5 Fed approved it.
6 All lawyers signed off on it.
7 Auditors signed off on it (lets hope).
8 I'm waiting to comment more until I hear from Tanta the Great Banking Lady of the Land. Good night
Brand,
But if the U.S. staves off significant inflation, then that 11% is a major score.
Forget the inflation for a minute. When offered an 11% return on my capital in this environment I'd be very concerned about the return OF my capital. Very little of that 11% has anything to do with inflation, but more likely Citigroup's current battle with deflationary pressures.
Citi is probably stable and provides 11% in the meantime.
This reminds me of something I was once told. Sometimes 80% is good enough. I replied that 80% is good enough about 80% of the time. In this case I would argue that 89% is good enough about 89% of the time (100% - 11% = 89%).
If Ben has to cut the FED rate towards 1% to stop inflation...
You might want to rethink that sentence.
Banker,
...Citi thought hard for about twelve seconds and said, um ok.
Twelve seconds isn't giving much time for a chief risk officer to act, lol.
Quick! Someone tell FoxBiz that Abu Dubai is at it again!
Remember, the Feds bailed out Citibank in the early 90s without putting anything on the official books.
You think they won't do it again?
The only explanation for the 11% is that the dividend cut is still to come.
When the market figures this out, all celebration will cease.
Ha, suckers!!!
heh heh, I think we are having all the excitment for nothing. The 11% only last till 2010 or 2011. And then the conversion will be mandatory. So the best way to look at that is the 11% a year is simply a discount to the stock purchase price. The conversion price is 31.83 to 37.24 for 7.5B. At 31.83, it will convert to 235MM shares. Let's say it get converted on March 2010, 2 years and a quarter from now. So ACIA will receive roughly 1.856B of interest. The net out of pocket is 7.5-1.856B=5.644B. And they will get 235MM shares of C. Worked out to about $24 per share of C. But by agreeing to this structure, ACIA won't get any divy between now until they convert the stock in 2010. I will leave it up to the pro who do DCF for a living to figure out what is today's price if everything get converted through DCF. It is sort of desperate for C to sell the stock so cheap. But given the situation, it is still a better deal than CFC get from BAC.
Sandy has a long relationship with the Gulf states. This is Sandy, behind the scenes, feathering his bed.
OT-
craigslist | Page Not Found
guy from cfc leased a bmw 645i and is laid off..are they laying of executives?
http://voiceofsandiego.org/articles/2007/11/27/news/mortgagefraud112707.txt
How many more?
Moin,
time for a review of the buybacks.....
....our return of cash to shareholders through our $7 billion stock buyback in 2006 ( Stock was between $ 45 and $ 55....)
Well done
Sounds like the SIV stuff is coming onto Citgroup' books ( as per HSBC ) and this is a CFC way of raising cash. BYW , how did that convert work out for Bank of america...last time I checked , CFC stock had a 8 dollar + price. I would expect the C writeoffs will be worse than expected and there will be some level of dividend cut. By the way , this doesn't change their bridge and pier loan problems , their problems with their 80 billion subprime mortgage servicing mess , looming credit card problems and the current credit crunch myriad of issues....the afterhour pop in futures should go away once folks think this through
The dividend will be the second shoe to drop. They'll let the new CEO share that bit of news with the shareholders. All part of cleaning house.
Cuting dividends is almost always a big sell signal. A dividend cut by C would signal another big leg down. Patient value investors at least want income while waiting for a stock to turn up. I still think that the market is on the balance between further,much deeper declines and a year-end rally. We may find out in the next day or two. My question is how much the whole financial sector may go up with C (and whether selling into strength will cause a reversal). Worse than expected data on consumer confidence and Oct home sales could still take down the mark. With futures up so strongly today, a big reversal would do a lot of damage. It seems that professional investors are really expecting good long returns during December
xo-
you are exactly correct, people here are missing the "mandatory" convert feature beginning in two years. Short-term hit while potentially minimizing dilution.
How in Gods name do you continue to pay a dividend if you are essentially bailing out the company.
Meredith Whitney is on CNBC right now saying that Citi will have to sell "over a billion in assets" to save itself, and that they will have to sell their higher quality assets to do it (and the mark downs on the rest will make it even harder for them to meet their reserves). Dividend is toast. Job cuts will grow.
Too big to fail, insh'alla
XO-
Correct on all the big points. Mandatory convert also has some minor other attractive features if I remember correctly - doesn't affect EPS, yet ratings agencies count more or less as equity.
No way dividend stays at current level.
The politics are really interesting. Looks like Rome demanding the semi-domesticated peoples on the edge of empire send some badly needed troops to the center.
Nice, americans own muslim oil and muslim own american banks. Perfect MAD situation.
I guess I didn't do my duty and sign all of those cash advance checks that Citi kept sending us in the mail. We must have received a couple dozen every week from early summer.
Perhaps that might be a very unscientific way of figuring out how long Citi knew that they were in trouble--by when they start the massive mailings.
Perhaps they now know how their poorly rated card customers feel--will the 24% rate move up to 35%?
rc-
I read the rest of xo's comments and you agree that he is correct on the major points, the rest is gobbly-goop.
I am surprised at the uneducated comments thus far, the conversion is purported to be roughly at a 15% premium to close.
I am not saying whether this is a good or bad deal, my point is that people are not evaluating this potential deal in a clear manner(granted that this information is purported and lacks a clear filing as well).
Interesting comment about Rome. My 8th grade daughter had to do an essay about whether America was an empire akin to Rome or was not. Some conversation about her thoughts - time didn't allow for real debate but we'll revisit later - and all I could think of was bread and circuses.
And hey, we sell China our crap loan packages and they sell us lead tainted toys.
Interesting times.
I'm waiting to comment more until I hear from Tanta the Great Banking Lady of the Land.
Let's see . . . $7.5 billion from Aida ("Se il mio sogno si averasse!"), plus, say, another $7.5 billion from all the little Citicorpers who are about to turn in their jobs for a free prize . . . is equal to about 20% of the current outstanding UPB of securitized subprime loans, give or take.
The connection is obvious.
I haven't been awake very long (didja notice?) but it looks like porkchop financing to me.
(In my playground days, one of the better insults was "You're so ugly your momma has to tie a porkchop around your neck to get the dog to play with you.")
potential cost-
Citi fund raising 'reasonably attractive,' analyst says - MarketWatch
Futures are well off their highs this morning. Gold is down over $11.00.Oil is around $96.50-down.
What goes around comes around.
Rewind the tape 17 years. The Saudis pumped billions into Citi because the bank ran out of capital making mortgage loans on "actuarial" instead of credit principles.
11% or not, we know whose flag flies over Citi, now don't we?
I'm reading The Panic of 1907 right now and this is one of the recurring themes, people provide capital to a bank in trouble, there's a relief rally, matters get worse, some banks (trusts often then) can find new money, some close... On Wall Street, money funding, when available at all, requires interest rates as high as 60-70%. (11% looks like a steal.)
There are definitely some parallels to the current situation, but as absurd as some of today's banking practices seem, things were even worse then. Reading how things worked, it's hard to see what prevented even more frequent panics.
I'm not one of the doomsters who think huge banks will be going under, but the cycle of misplaced assurances and rallies followed by doses of reality and panic are very similar.
I haven't finaished the book. I'll let you know how it ends...
CITI taking a cash advance for 11% interest. LOL! Now they know how the little guy feels when he hits the cash advance checks.
"Se il mio" - If only my dream might come true!
Free translation (in both senses).
Joe Green/Giuseppe Verdi
On an earlier thread people discussed the line item preventing ADIA from hedging Citi. Has anyone considered that the Citi stake might itself be a hedge for ADIA?
uhh huhh.. ADIA may have looked around at other investments (their own and nearby sovereign wealth funds) and asked the obvious question.. "what happens if C goes down ? what would that do to our other investments ?" this may be as much an investment as a CYA.
Conjure and I are standing by our statement here last week:
The bull market in equities is over.
We also stand by our August statement:
Recession Q1-08
The bonfire is just beginning. Get out your marshmallows. And graham crackers. We are bullish on marshmallows and graham crackers.
inability for a big bank to pay dividends does also allude insolvency.
Markets, commodities, stocks are experiencing forced liquidations. Bullion being pulled and pushed by Dec options. Money moving to perceived safety of Treasuries (big mistake) as Fed is very likely buying along the whole curve to keep rates down...not sustainable. This Citi move speaks of desperation to raise capital. Another sucker born every day I guess. They're heding their losses with 11% perceived guaranteed return on their money. BAC thought the same thing with CFC...at ahem, $18. What's CFC now? Another sucker. Either all of these folks in high finance believe their own kool aid BS, or the general public really really over estimates their analytical skill sand overall financial acumen. Whitney is going to be proven correct and someone in Abu Dhabi is going to lose their head in 12 months.
P.S. wait for Congress to start voicing concerns about SWFs buying assets in the national interest... In effect, sure, buy our treasuries, agency debt too..fund us but buy nothing else. They're dreaming as it's not going to work that way with the SWFs. Going to be most interesting.
We are bullish on marshmallows and graham crackers.
are you bearish on weenie roasts?
OT:
Report, released today, from the U.S. Conference of Mayors on the economic impact of foreclosures on cities:
http://usmayors.org/uscm/news/press_releases/documents/mortgagereport_112707.pdf
There is a simple point of economics here: in illiquid times you can still get money, you just pay more. This is why the Fed is doing exactly the wrong thing by lowering rates. By promising a cheaper tomorrow they postpone accountability and remove discipline. The best thing to do right now is puke your guts out and get on with healing, not to prolong the event.
I havent seen any comments yet about Schumers Sophies Choice yesterday.
On the same day he praised the Citi deal with "this transaction will bolster Citigroups capital and competitiveness", he thoroughly trashed CFC with "concern over the lending practices of the Federal Home Loan Bank of Atlanta, specifically in regard to the significant volume of advances made to Countrywide Bank" and the quality of the collateral that CFC has provided, recommending that FHLB effectively cease providing advances to CFC.
He went on to note that that 78% !! of CFCs portfolio has already been pledged as collateral. It seems reasonable to assume that the remaining 22% is of lower quality, the leftovers if you will. So my conclusion is that CFC is fast running out of powder and in a very public way given Schumers letter.
It also seems like a deliberate attempt to drop CFC off in the woods to fend for itself as opposed to the loving affection heaped on Citi.
Thoughts?
are you bearish on weenie roasts?
I am also bullish on weenie roasts. And hot dog buns.
sky,
Gold being down like that sounds like a tell to me...along with the futures giving up much of the overnight pump up. What is going on with LIBOR, ABCP, CDO's and RMBS's will ultimately tell the tale, is my guess.
It took BofA almost a month to lose a billion dollars with their capital infusion in Countrywide. Another day like we've had recently and the Abu Dhabis could do that in one session.
The symmetry is delicious. We overpay for their oil, they overpay for our stocks.
I'm sorry to be obtuse... and I've tried researching this... but I'll ask again:
Why don't these various banks in trouble simply borrow money at near ZIRP from Japan? Is there something that stops them from doing so??? I have never understood this.
Hedge funds and regular citizens evidently do it all the time- borrow in Yen and then use that as a carry trade...
why can't Citigroup just borrow $7.5B worth of Yen at under 1%???? Sure, they'd be at risk for currencly fluctuations, but it can't be as bad as 11% can it?
what am I missing here... help!
I am also bullish on weenie roasts. And hot dog buns.
You realize that eventually you'll be bullish on pickle relish and potato salad, and you know where that leads.
Flyover country will own your sorry coastal elite asses.
I recall a note last year suggesting liquidity problems/margin calls might force down some stocks, and particularly gold, if the going got rough.
I don't know if I'd recognize the pattern if I saw it. GLD has been through several episodes of volatility, after all, and a few sinking spells. Is this noise? Or is something interesting afoot?
Is there something that stops them from doing so?
Borrowing a dollar six months ago a 0% would require a repayment of $1.14 today. Hardly cheap money at 30% effective rates.
You realize that eventually you'll be bullish on pickle relish and potato salad, and you know where that leads.
my coastal elite ass is also bullish on grey poupon, but i'm still waffling on sauerkraut.
Does Abu Dhabi get a toaster or an NFL sweatshirt ?
Flyover country will own your sorry coastal elite asses.
If I bring some lemonade for the kids and fresh limes for the adult beverages can I park my sorry coastal keester in a lawnchair and try to "pass?"
Is everybody satisfied now with the current rearrangement of deck chairs? Last call for shuffling!
Two news items:
Case/Shiller data show a record decline in home prices.
German banking group KFW just boosted its loss provision for IKB (the bank that the ECB had to bail out a while back because of systemic risk), citing "new developments". IKB shares are off 9%. Wonder what those "new developments" are?
my coastal elite ass is also bullish on grey poupon, but i'm still waffling on sauerkraut.
Conjure Bag says, "Sauerkraut is non-negotiable."
We'll be bullish on kraut, but not at the moment.
"There is a simple point of economics here: in illiquid times you can still get money, you just pay more. This is why the Fed is doing exactly the wrong thing by lowering rates."
It took a long time but I think they're finally pushing on a string.
When the fed fund rate was lowered to 1%, we still had a huge mass of good creditors: homeowners. Now we've run out.
It's cleanup time.
Does the hedging language prevent ADIA from shorting or buying puts on other financial stocks that might behave similarly to Citi? Accumulating puts on a basket of financials would allow them to make their 11% return and reduce their downside risk of being forced to buy Citi stock in 2 years when it could be 50% lower.
Is everybody satisfied now with the current rearrangement of deck chairs?
Conjure thinks the arrangement is just fine.
"We'll be bullish on kraut, but not at the moment."
Ramen noodles going strong!
bacon-
that's funny. good laugh here. Thanks.
Don't we get existing home sales at 10 am EST this morning?
Kett82,
Thanks for the link to the U.S. Conference of Mayors report. It is concise and to the point in describing the downturn of 2008.
It projects that "there will be 524,000 fewer jobs created across the country in 2008."
Presumably, that means 524,000 fewer than in 2007. But how many new jobs did the U.S. economy create in 2007? In my opinion, the best source is:
http://research.stlouisfed.org/fred2/data/CE16OV.txt
Answer: Through the 1st 10 months of 2007, just 81,000 civilian jobs were created in the U.S. economy.
Take the Mayors' report at face value.
It says the U.S. economy will drop half a million jobs in 2008. That will push unemployment well above 5%, unless Americans are willing to fill jobs of Mexicans heading home.
The ADIA purchase in the bigger scheme of things:
The banks spent the last five years decapitalizing by using fictitious (i.e. underreserved) earnings to buy back shares.
Now that those ficititious earnings are being reversed, the banks have to recapitalize and them some.
The ADIA transaction and the CFC/BofA transaction are just the very first in the tsunami or capitalizations. That's why they occurred at "reasonable" prices.
The tendency is for the first dilution to seem like a great deal for the dilutors. After the second and third ones, the dilutors wonder how they could have been so stupid. This continues until you get an over-reserving for bank losses, at which point only a crazy man will buy the dilutive issue, and that crazy man will make lots of money.
If I bring some lemonade for the kids and fresh limes for the adult beverages can I park my sorry coastal keester in a lawnchair and try to "pass?"
Robert, are you declaring that you're going to sit there in your lawnchair and intentionally try to pass gas? that's not how you get yourself invited to a weenie/marshmallow roast. when people look accusingly at you, you're supposed to glance sideways suggestively and raise your eyebrows in Tanta's direction.
Conjure Bag asks, "Is everyone ready for the dead cat bounce?"
WASHINGTON (MarketWatch) - U.S. home prices were falling in every region of the country in September, according to a closely watched index of home prices released Tuesday.
Home prices fell in September in all 20 major cities covered by the Case-Shiller price index, even in cities that had been holding up, Standard & Poor's reported...
Record home-price declines as all top cities turn sour: study - MarketWatch
Barry writes in SeekingAlpha this AM:
"11-frickin-percent!
How's this for ironic: Citibank has essentially become a sub-prime borrower -- only without the advantages of teaser rates!"
Conjure Bag says, "We are all subprime now."
"Don't we get existing home sales at 10 am EST this morning?"
Yes, except for Cleveland:
"In the inner city, it takes about 72 hours for a house to be looted after it is vacant...
"If someone takes the doors, moldings, appliances, it's bad enough," said Wiseman. "But once they pull the piping out, it's all over; they do it with a sledge hammer."
CNNMoney.com: 404 Page Not Found
real_estate/suprime_and_crime/
Ironic they have a structured equity investment to solve their structured junk mortgage problems.
Tried valuing this thing- the equivalent to Citi in addition to the investment is that they received a put on their stock and wrote a call. The net spread is roughly $3.50 for Jan 2010, probably up to $5.00 for January 2011 and $6.50 based on January 2012 a share (based on currently high volatility options quotes.) Add the option value Citi receives to the discounted strike price. That makes the deal less dilutive- about 13% at $31.83 a share. Pretty steep discount for a PIPE, but not unheard of.
Anyone who understands the Upper Dec'er that Citibank laid on itself here please correct how I am looking at it. The term sheet is pretty vague on a couple of points.
This cat isn't bouncing to high so far this morning.
I think Friday was your dead cat bounce.
Bacon dreamz this one is for you.
BBC - Food - Recipes: The best bacon sarnie
Bacon dreamz,
The only thing that smells here is the deal. They could have offered the public 10% and lower conversion prices and got it easy. This is the facade on a far bigger back room agreement that no one is talking about.
Risk capital posted a link to a similar MarketWatch story, but I haven't seen much reaction. So here it goes again.
Stefan-Michael Stalmann, an analyst at Dresdner Kleinwort, said that while the coupon of 11% looks high, the after-tax cost of funding is equivalent to Citis current dividend yield of around 7.25%.
Stalmann called the deal relatively attractive, and said Citi is issuing delayed equity at a premium of 8% to 25% to the current share price, avoiding the discount a current rights issue would have required.
Citigroup gets $7.5 bln infusion from Abu Dhabi - MarketWatch
Why Citi can't take the high road over credit mess:
Why Citi can't take the high road over credit mess - Nov. 27, 2007
Robert, I agree Citi could have done a public offeing and got better rates. Wonder what is really going on.
BTW when we had that killer petfood scare I bought lots of stock in petfood manufactures. A lot of people will be eating catfood before this is over. I wonder if the Fed has put that subsitution in the CPI yet?
why can't Citigroup just borrow $7.5B worth of Yen at under 1%???? Sure, they'd be at risk for currencly fluctuations, but it can't be as bad as 11% can it?
what am I missing here... help!
Banks have to maintain certain amounts of capital (equity) relative to the value of loans on their balance sheet. It is the only real restraint on ability of banks to create money.
The capital needed can't be borrowed. Otherwise CitiBanks problems could be solved through the interbank market at 4.75% interest.
Ultimately, the capital needs to come out of base (M0) money and there is only a ~trillion or so of it.
re: All your money are belong to us.
Dissident, you made me spill my coffee with that one. Very nice.
11% ? Looks Like Citi is subprime now
This will pop the markets as well as the upcoming FED cut. However, I plan to sell after the cuts on the year end rally. I think that this will be the last good news before the market sells off next year. With all the boomers suffering real estate losses, they will sell next year when the markets start to decline. Think of all that 401k money leaving the US and international markets.
OOPS...
CNBC headline on screen for 15 seconds just read:
"Citi receives $7.5 billion cash INFECTION" (emphasis added)
changed to: INJECTION 15 seconds later...
Ok....what are the chances the oil dudes are positioning to buy Citi?
The reason they don't cut their dividend is that they don't go ex div for a couple of months. Why would they announce now? There are a lot of dividend investors out there and the stock would take another 30% hit. They are also thinking that maybe they can just cut in in half.
The 11% is the teaser rate.
Wonder what the next $7.5 billion costs them.
Heh heh I tought I understand the term pretty much.. Turn out none of us really know what is going on.. The 8K is out.. and I challenge any MBA on the board to understand this term...
The resource cannot be found.
All of the common securities of each trust will be owned by Citigroup Inc. The series A trust will use the proceeds from the sale of the series A capital securities and its common securities to buy a series of 6.320% junior subordinated deferrable interest debentures due March 15, 2041 (referred to in this document as the series A junior subordinated debt securities) from Citigroup with the same financial terms as the series A capital securities. The series B trust will use the proceeds from the sale of the series B capital securities and its common securities to buy a series of 6.455% junior subordinated deferrable interest debentures due September 15, 2041 (referred to in this document as the series B junior subordinated debt securities) from Citigroup with the same financial terms as the series B capital securities. The series C trust will use the proceeds from the sale of the series C capital securities and its common securities to buy a series of 6.700% junior subordinated deferrable interest debentures due March 15, 2042 (referred to in this document as the series C junior subordinated debt securities) from Citigroup with the same financial terms as the series C capital securities. The series D trust will use the proceeds from the sale of the series C capital securities and its common securities to buy a series of 6.935% junior subordinated deferrable interest debentures due September 15, 2042 (referred to in this document as the series D junior subordinated debt securities) from Citigroup with the same financial terms as the series D capital securities.
I am betting this term is trying to bypass the regulation and treat the 7.5B as a TruPS type of loan for now until the conversion. And allow C to use it for Tie 1 capital since ADIA is not buying the stock at this time... But someone else need to figure this out. I think I am way out of my league on this one...
CR,
I understand where you are coming from. But take a look at the Mayor's report that Kettle linked this a.m.
http://usmayors.org/uscm/news/press_releases/documents/mortgagereport_112707.pdf
Here's what I'm saying: Based on static data, the Mayors are projecting California will lose $4 billion in revenue in 2008 resulting from the mortgage crisis. But you can't lose $4 billion in state revenues without cutting jobs. I you cut jobs, you no longer have static data. You have a feedback loop.
We had a positive feedback loop on the way up (housing - taxes - jobs - housing), and this produced the record appreciation. Now, we will have a negative feedback loop on the way down. Bubble markets are bubble markets, in part, because of the feedback loop.
The Drudge Report headlines this Citi article from International Herald Tribune:
Abu Dhabi breaks from its past with Citigroup investment - The New York Times
Abu Dhabi breaks from its past with Citigroup investment - The New York Times
Rubin flew, yes flew, to Abu Dhabi to get the money. What is lacking is the photo of him on bended knee begging for it.
Kicker, Robert,
thanks for your responses... now I understand why they can't just borrow the money...
Rubin flew, yes flew, to Abu Dhabi to get the money. What is lacking is the photo of him on bended knee begging for it.
The manifest of the other players on that flight might prove very interesting. As well as helping us understand the mechanics of the deal and who had to go along to explain it, cross the tees and dot the eyes.
Is there any information available about who are the investors (or principles) are in ADIA ?
dissident and Stagflationary Mark:
Thanks for the reference and the link - I loved it and especially loved it when I tried to show it to my son and he said "Oh all nerds know that."
http://en.wikipedia.org/wiki/Abu_Dhabi_Investment_Authority
"...Two things make ADIA special. One, it manages the emirates excess oil reserves, estimated to be as much as $875 billion. Its portfolio grows at an annual rate of about 10% compounded.
As such ADIA is the worlds second biggest institutional investor, behind only the Bank of Japan, according to the Oxford Business Group. Its pulling power is immense. According to a former HSBC banker, it is one of the few organizations Stephen Green, or his predecessor as chairman of HSBC, John Bond, will drop everything to go and see. They will not be the only senior bankers and corporate executives prepared to do this.
But what makes ADIA so interesting is the veil of secrecy that shrouds its activities. Abu Dhabi Investment Authority is one of the worlds biggest institutional investors. It is also one of the most guarded. It publishes no numbers. In the 30 years since it was established, it has never publicly declared the amount of assets it has under management. Its website lists just its contact details; nothing more. It seldom makes any public statements. However, the Abu Dhabi Investment Authority has an influence in the markets that few investors can match. It has unrivalled access to the best strategists and advisers..."
Visit ADIA's webpage - sparse.
http://www.adia.ae/