ok, let's see. Goldman WAS down to 180 back in the last credit hit, now back up to about 230. You think you are too late on shorting? Hell no. The question is, do you have the balls to hang on to them as long as you need to. I dropped my skf midway through the post july recovery, but id be better off already if I held it, seeing as what has happened the past few days. Many more shoes to drop Id say.
MaxedOutMama, the press release is stunning - this could just be the beginning of the write downs! They claim they will be able to maintain their dividend - I doubt it.
These losses are very dependent on house prices - "fair value of these super senior exposures is based on estimates about, among other things, future housing prices" - I'd love to see their estimate of future price declines (they are probably too optimistic.)
What happens if one of those many Citi pier loans goes bad? Ouch.
Accordingly, Citi has no plans to reduce its current dividend level.
Didn't AHM say the same? I am expecting citi to drop dividend on a friday evening, and then.......some people will need to look for a new bank for their deposits
"You're right, I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars next year. You know, Mr. Thatcher, at the rate of a million dollars a year, I'll have to close this place in... 60 years."
Losses? Oh, those losses! It may be 8, could be 12. It's all paper you know, very dependant on how the market valuation cycles up and down. We don't want to worry about it to the exclusion of our serious business here. Besides, if you have to ask how much you really would not understand the answer. Say, these handcuffs are such a bother, is all this fuss really needed?
Citi and many of the major banks are BK based on liabilities exceeding their shareholder equities.
The denial (read that as refusal to project a high probability) here is disappointing.
What's next? (Explaining the next step of minutia isn't gonna help us plan proactively.) Does some syndicate buy Citi and the rest? With the disappearance of equity, the LTV ratios will immediately power the drop in lendable funds. Normal borrowers will find themselves strangling and drop like Hussein.
What is impossible not to see is the breadth of the corporate and municipal walking-dead. That's on the one side. And on the other, the super-rich have just learned coupon-clipping is seriously damaging to one's economic health.
So what does everyone estimate that Citi's losses will ultimately be now that they have shown their cards? They have laid out all their CDO types and amounts. My first guess would be that the CDO's and subprimes would lose 40% (43 billion would give a loss of 16 billion) and that the other 11.7 billion would have a loss of 20% giving a loss of 2 billion. That gives a total of 18 billion of losses and they are recognizing 8 billion now - so another 10 billion write down coming.... Of course this is a huge guess, but maybe some of you have a better guesstimate.
Jack Staub, et al, the way I read the press release, all of the complex subprime exposures discussed related to the risk of assets actually listed on Citi's balance sheet.
As bad as this is, the details of deficient capital through 2Q 2008 (based on Citi's projections) appear exclusive of the $80 billion dollar SIV problem. At least, that's the way it reads to me - have I missed something?
IMO, CITI's disclosure here is an obfuscation. It's smoke & mirrors.
Anarchus, you're correct, there's no mention of SIV. And as mentioned above, there's no mention of pier loan positions. And there's no mention of Commercial RE positions.
CITI is BK. Is there any other conclusion, honestly???
Forgot to mention, no mention of Alt-A, Jumbo and oh, yes, they're lenders to what were ongoing businesses. Might they have lines open to RE/Construction and related companies?
Some of the comments above are simply irresponsible.
At this juncture, it is safe to assume two things, credit is about to get much tighter, and the hedge fund universe is going to enter a contractionary period.
Ignoring the filthy lucre for a moment, spare a moment or two for the eulogies. Excerpts:
"Chuck has been an extraordinarily committed leader....
We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders.
Citi has extraordinary people and the Board is committed to working together with them... We are fortunate that Chuck will continue to serve the Company in an advisory capacity...
Mr. Rubin said, "The Board and I have tremendous respect for Chuck's leadership and his accomplishments over the years...its formidable competitive advantages. Citi... tremendously talented employees, who are our most important asset..."
Man, I didn't get anything like this when leading Bath University Field Hockey as it played rival Cardiff Uni.. And we won ! And then there was the time Reading Bridge Club... And we aren't even talking about biz wins...
Makes ya wanna puke.. There is an awful stench to all this.
Anarchus, I agree with you -- the SIVs were not addressed. If M-LEC is dead, which I believe it is, and C is forced to consolidate their SIVs, which I believe they will, then their write-downs are going to grow considerably.
". . . . But it is Mr. Rubin, the highest profile member of the star-studded board, who has been a particular lightning rod for criticism. His murky responsibilities -- and lucrative pay package -- have fostered resentment. Last year, he collected a total of about $17.3 million in salary, bonus and stock awards, making him Citigroup's second-highest paid executive after Mr. Prince, according to the company's proxy statement. To some past and current Citigroup executives, and to investors, the pay seems excessive considering Mr. Rubin's nebulous duties."
And Rubin's sophisticated response to a query from the Journal was apparently, "The board is a very strong board and a very good board."
Kind of like Crosy, Stills and Nash:
Our Board, is a very, very, very strong board,
With subprime in the yard,
Financial life is hard,
Now everything is stinky 'cause of you.
Last I looked, futures were down about 6 on the S&P (at 8:30 pm easern). Also, I read that Citi is up 5% in Tokyo (probably includes the 4% after hours on Friday), even though Japanese banks are getting hit. Next week will be interesting. One idea is that C is worth more without Prince. But if the write offs that we are discussing today are more than expected, that should hurt the stock. In any case, I am holding a lot of puts on banks, mostly mid-sized ones (not C), but also COF (Capital One) and Mer on the larger cap side. I don't really see how changing the CEO helps much beyond a day or two. Mer really bounced when their CEO was sacked last week, and then it collapsed. Perhaps Citi will do the same.
CR, the most amazing thing is that "future housing values" bit you picked up on. Having looked at their quarterly results earlier, they have another problem. They are increasing reserves for international consumer loans too.
And then, those piers.... The is a major league kick in the face.
GaudiaRay, I think to say that Citi is BK is irresponsible. Bankruptcy will only come from poor cash flow plus writedowns AND the inability to sell off lines of business sufficient to cover those losses. That's quite an assumption at this point for Citi. I am dubious that Citi's capital position is as good as they claim in that release, true, but I don't think you know what you are writing about. I'm not intending personal discourtesy with that observation. My intention is to present an alternate view.
If the figures on Yahoo finance are somewhat accurate, Citi prior to this release has about 125 billion book value. If they have to take 20+plus billion in charges, this 8 plus additional on the super CDOs; they will have to shrink their balance sheet to maintain capital ratios. Their book value could shrink by 40 plus billion.
At one times book, the stock is in the low 20s, maybe even the teens. There still is a big haircut in the making.
AC - Citi is one of the big boys that is beginning to require significant downpayments in "declining areas". Therefore I would think that they would have trouble calculating valuations on the basis of home prices turning up. Someone's going to have to sign off on the annuals, and be legally liable for those numbers. The whole point about turning over executives is that then you get to go to the confessional and blame it on the dear departed!!!
I think CR's confessional just got a major increase in traffic, though!
I'm with MOM. No need to assume that C and the rest of the US banking system will collapse next week. There's a good chance that the stock will go up some after last week's big hit. Will the decline in US financials continue next week unabated? Can the NADQ 100 keep going up, when most of the increase is due to four companies (GOOG, MSFT, RIMM and AAPL)? And what about oil and gold? Will the market lose confidence in the Emerging market? Tune in on Monday.
I guess the question is at what point does a company with a trillion dollars in assets become insolvent?
The ABCP could easily produce $30b easy(according to some ABX pricing),+ the PE mess could produce $3b in losses (at a minimum), I guess the question is how can citi categorize for the bridge financing(ie pier loans) accountig wise?
The point of the MLEC was to stringing out these losses over a couple of quarters, but their future deal volume was gonna trend down anyway, so write offs could extend out a year +
It's a mess, rule #1?
Never have a lawyer run anything beyond a law firm.
MoM, isn't Rubin in a pretty compromised position for taking a "big bath" in the fourth quarter and blaming it all on Prince?
Not to mention but that IF Rubin tried that, you'd expect that Prince might be able to leak stuff to the press placing some responsibility for the big bath on Rubin's shoulders . . . . . . . that's why I didn't think that the stock market would react that well if Rubin stepped in for Prince because Rubin really isn't that different from Prince in terms of responsibility or as an agent for change. And then of course Citi stock is up +5% in Tokyo! Shows you what I know.
w/ MLEC it might have taken 6 mos. to 1 year or more for real prices to be discovered. Now they will be known much sooner. The vultures will not have to wait as long and, ultimately, the total pain will be less.
The economy IS more resilient than often seems possible. But I am sure (willing to bet big time) that home prices and the housing market have a long ways to go down--much more than companies holding morgage debt can stomach. I also agree that BK for some of the major public home builders is very likely and will shake up the banks and "deep value investors." In the meantime, however, it's very risky for bears to get too greedy buying puts and going short without watching the short and medium term technical indicators. I learned this last fall when I lost a lot during the rebound in housing stocks. I was right that the housing recovery at that time was bogus, but being right did not equal making good investments.
MaxedOutMoma.."Bankruptcy will only come from poor cash flow plus writedowns AND the inability to sell off lines of business sufficient to cover those losses."
BK is either based on cash flow or net asset value, right?
Let's talk "writedowns". What's the value of their SIV position, their CRE position? Is it Level 3? Are there newly lain floors to asset values?
When C is forced by its drop in net asset value to jettison outstanding loans (as in sell them in a buyers' market), are we supposed to believe they have a year or so to do it?
Their capital has vanished. The consequences are immediate. Or do they have a Federal Get Out of Jail Card from Bernanke and Paulson, and oh, BTW, is that legal?
I forgot, Rubin will waive a wand and make it legal.
We are looking at writedowns, as in truth observing, not waiting for them to tell the world anything. They've lied, they've withheld, they've tried to stick the US taxpayers with the M-LEC consequences...long term loans on high risk paper as the economy is heading into unknown lower price territory.
The C folks are very bad people. I'm not saying that all bankers are not thieves if they can get away with it. It's been that way for 30 years that I know of. But when the music stops, it is time to count the people without chairs, and Citi has many, many, many.
We must look honestly and disinterestedly. We must not wear blinders and not examine what's in front of us. Arthur Anderson is no longer with us because their partners and managers refused to conduct a responsible audit. IMO, this forum is the best place for the world to conduct this audit.
Prince might be able to leak stuff to the press placing some responsibility for the big bath on Rubin's shoulders . .
You bet - Its no coincidence IMO that they throw a senior exec off the yacht at Bear and we get these salacious stories about Jimmy "Cagney" Cayne ( yeah old joke, what is the current joke ?). We are gonna have some fun in the next few months and the SEC and the Fed prosecutors had better staff up to handle people turning Queens evidence.
"Oh, what a tangled web we weave when first we practice to deceive" - Walter Scott
The American banks no longer rule the world financial stage and will be busy the next few years trying to fend off lawsuits arising from their Enron style accounting Depts not to mention those pesky Congressional hearings who just love a fall guy during an election cycle. Rubin will be busy but his position is political rather then financial in nature as he attempts to keep the howling wolf's at a distance.
Anarchus Isn't Rubin in a pretty compromised position for taking a "big bath" in the fourth quarter and blaming it all on Prince?
Well, that's why they put out this release now.
I don't disagree with your remarks on Rubin. Sure, the man is bright, but a good part of what we are really confronting now are the results of dismantling some of the post-Depression regulations, and he was a major player in that. But the point of appointing Rubin is to generate confidence, and Rubin's political pull is an implicit statement that Citi will be seeking dispensations and indulgences right along with its confessional visits.
rc and MOM, you are right, C is not bankrupt, today.
They will fall to that within one year, though, with the upcoming avalanche of write-downs that will come out of our recession (now underway) (moving to depression).
The fun has just begun, and is now rapidly accelerating.
Is the noise about Citi covering up the sounds of other shoes dropping?
CR, MOM, Banker or other smart and informed people have some info to post?
Any Black Swans seen taking off?
Rubin will be busy but his position is political rather then financial in nature as he attempts to keep the howling wolf's at a distance.
You bet, the revolving door between Wall Street and DC. Make a few campaign contributions, pay a little fine without admitting wrong doing, lay low, pass all they can off on the taxpayer, and than back to ripping off main street during the next cycle. SOS
They emphasize that these rightdowns reflect security price declines AFTER End September. in principle the other banks need to make similar writedowns.
$11B for Citi alone? b-b-but Ben Stein, Fox News, the AEI, the WSJ Op Ed page, and NRO have been telling us this problem was "grossly overstated", and these folks have a really firm grip on reality.
In a more serious tone, IMV high home valuations are a blessing now, not a curse, since they can NOW GO DOWN, providing welcome leeway for middle America trying to make ends meet in the face of rising energy costs, defense spending, interest rates, and G-d Forbid, taxes.
'course, there's a foreclosure between most folks and these new lower housing costs, but that's the way the cookie crumbles.
I thought Citi's disclosure here was VERY strong and will be seen that way by the buy-side. The problem is that because not all these securities/loans are required to "mark-to market" getting a real handle on things from the outside remains very difficult. Also, those mezz tranches have got to be a mess, don't they? It looks to me like a $7 billion hit to net income is a minimum here. Two other points. The idea that Citi has six-eight months to replenish its capital base seems optimistic to me. Life is going to get tougher here for a few months, not easier. I'd be looking hard at the dividend if I were on the Board. I wonder what a consortium of KKR, Texas Pacific, Blackstone, Harvard, Yale and Apollo would charge for a $5 billion convertible preferred?
To answer your insolvency question, any major bank or IB goes down when it can't roll its CP. That was the trigger for Drexel, Hutton and, but for Buffet, would have killed Solly.
Mr. Rubin said, "The Board and I have tremendous respect for Chuck's leadership and his accomplishments over the years...its formidable competitive advantages. Citi... tremendously talented employees, who are our most important asset..."
My few months reference is to the financing/management crisis Citi may be entering and its ability to finance and manage its way through it, not to any wider economic issues.
GR - Citi's capital is not gone. At the end of the 2nd quarter, they listed total assets of 2,220.9 billion. Now I would say that's inflated, but even if we throw out a good chunk of it, they've still got money, and a lot of it.
Now their earnings from US consumer business dropped a lot over the last year. They tried to expand internationally, and their earnings release for 3rd Q (now apparently withdrawn) showed that they were having troubles there. Cash flow is an issue for them. Still, they can afford to sell a lot at a big, big loss. Naturally, it would make their shareholders profoundly unhappy.
They are a big, big operation that can afford to take major losses. NetBank they are not.
Believe me, no one on this board is able to audit Citi. If anyone does have access to the information, that person or persons is bound by confidentiality. You really do seem to be writing wildly to me.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of
(a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and
(b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which include:
b1. approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and
b2. $10 billion of high grade ABS CDOs and
b3. approximately $8 billion of mezzanine ABS CDOs and
b4. approximately $0.2 billion of ABS CDO-squared transactions.
Now, after all that has been discovered that triple A no longer means triple A, An additional 8-11 Billion is absolutely NOT ENOUGH. The majority of the $55 billion is fictitious.
Is there any way to determine how much of their remaining subprime exposure, whether direct or via super secret, er senior, tranches of CDOs is first vs. second liens? I'm predicting (for no better reason than the pattern of REO sales prices I observe) that loss severity in seconds used for downpayments (i.e. the 20 part of 80/20 100% LTV deals) is going to approach 100% over the next 3 to 5 years. My sense was that seconds were extra popular with the CDO crowd since their spreads were larger and thus more amenable to elaborate structures.
Is it just me or does "Super Senior Tranches" seem like a really goofy name? Kind of like the "super secret decoder ring" you could get with 4 box tops and $4.95 for shipping and handling.
The IBs are only dealing with the fallout from the most obvious wretched excesses. The broad economic consequences haven't even really hit yet ("Dude, where's my recession?"). Unless you think a new boom is right around the corner, it's more like a few years than a few months.
Because anyone who tries to look out any longer is guessing...
Well, I must be guessing a whole lot better than you are.
Banker - won't C have to sell some stuff? I'm going on their income trends, etc, plus the now-withdrawn 3Q earnings release.
It seems to me that they have to hoard capital now. Depending on how Basel II is applied, I suppose they could get some significant help from it. But that won't reassure the analysts, assuming that the big 2007 increases in the "Securities and Banking" cat fall back to 2006 levels.
To answer your insolvency question, any major bank or IB goes down when it can't roll its CP. That was the trigger for Drexel, Hutton and, but for Buffet, would have killed Solly."
-- Is this not exactly what is happening with the SIVs? They cannot roll their commercial paper, right, and they are shrinking balance sheets by selling assets.I see each of these SIV's as non regulated baking companies, who are rapidly shrinking their balance sheets, ironically in the same brutal fashion as the multiple banking liquidity crises enforced in the 1800's.
Mr. Rubin said, "...Citi... tremendously talented employees, who are our most important asset..."
What a hoot! The most important asset, my friends, is C-A-S-H and Citigroup doesn't have it.
Conjure Bag is sitting in his corner, smoking a Macunudo and laughing derisively. He says, "More writeoffs, more writeoffs coming!"
Meanwhile, the little mouse, known collectively as Citibank depositors, cowers in a corner, unable to find its mousehole and wondering when the cat will arrive.
In no order:
$2.2 trillion in assets, $127 billion in shareholders equity, about $80 of which is tangible, short term borrowings of $167 billion,
$10 billion in reserves for loan losses, $5-$6 billion in net income (quarterly), dividend of $2.7 billion quarterly,
The short term borrowings are the solvency issue here. Looks to me like the prident thing to do would be to cut the dividend and shore up tyhe tangibnlke net worth especially because between the third and fourth quiarter, it ain't going up from operations.
I can't find a 10Q for Q3 btw, so I'm quoting numbers from Q2 as you are I expect.
IMO, you can't quote assets without mentioning liabilities especially when you are talking about thin margin leveraged, trapeze artiste( and people think bankers are staid and stuffy) businesses like banks.
When one guesses that there will be a recession over a 5-10 year time frame, that isn't even a guess, it's just a flip of the coin. Citi won't just sit there and wallow, they'll act. More broadly, no recession anhd next year is better than what the fourth quarter will be. I'm a consensus guy this time around.
MOM,
I haven't tried to apply Basel, so you may be ahead of me there. I suspect selling parts of the company will happen no matter what else happens going forward.
smehta,
I do think that's what we are and will continue seeing with the SIV's. BTW, I don't know where you've been hiding, but please stick around, that is the second really good insight you've provided on this thread.
Have there been any equal historic times in which two major CEOS have been ousted from banks in ust a few weeks?? Outside of the 1930's. Seems like everytime I turn around something hasn't happened since the great depression.
Mr. Rubin's first executive action should be to direct that half of all the lighting in the Citicorp building be turned off, thermostats set back to 59 degrees, and the paper clips and rubber bands on all incoming mail be re-used.
Oh, and no more Post-It notes, and bring your own ballpoints (BYOB).
Funny you ask that, it really struck me as well. In the last 25 years or so no two heads for the same overall financial problems no. Now I'd bet a nickel or so that in the mid-1980's a whole bunch of S&L guys got the boot in close proximity.
Do you think there will be any credibility at all around their statement maintaining the dividend? As news gets out and folks start to examine the specifics, doesn't cutting/stopping the dividend just jump out as the most logical finger in the dike? I don't understand how anybody, especially in the financial press, can conclude otherwise ??
$40 billion of that shareholders equity is goodwill.
Yup - what the man said.
From a numerical math perspective, when you subtract one LARGE number from another LARGE number and end up with a pretty small number my antennae really twitch as to any meaning I can assign to it. I almost want to treat it as zero - from a trading perspective I recall dissecting KKD balance sheets and could see a sure fire winner in the way they were "buying" franchise owned stores(11% contribution) and as company owned stores(81% contribution ) justtt in time for their Q results - mannn it really boosted their income. People have GOT to see thru this I thought. 2 years ( 2YEARS ) of these shenanigans and many XXXX $ lost in puts, shorts, THEN people get it.. So it goes.
And that CEO, Livengood( what a name ! geddit ? ) never went to jail either.
I don't have any idea whether citi is or isn't solvent, for sure. If we get 20% home price declines next year there won't be any doubt.
What is clear is that the overall rate of decline has picked up furiously. The lows will get lower and the big equity drops will become more frequent and sharper, spreading to include more market segments, as credit tightens and the consumer says uncle. Sentiment? Anger is almost certain as is a lot of 401k seling, spelling capitulation.
I can't wait to see the expression on Kumblow's face.
Nothing happens in isolation. Caution will be the watchword at Citi, and the risk management and auditing staff will uncharacteristically swagger through the trading floors. The best offense will be a good defense, and that won't change for years.
The upshot is stricter terms for credit. Stricter terms for prime brokerage clients, which forces hedge fund selling. Stricter terms for credit card customers, which reigns in spending. Stricter terms for every type of credit, no matter that the cost is lower asset prices and yet more losses. There is simply nothing unusual or unnatural in this process, nor is it a "six sigma" event.
The chain reaction of credit contraction is underway. It can't be stopped because its reached critical mass: critical mass occurs when the actors have more to gain from cutting their losses than they do from keeping their levered assets on life support. Please realize that the balance sheets of the big wall street firms all ballooned in 3q -- they were definitely not cutting losses. This may have to go on for one more quarter as they swallow more SIV assets, but by 1q08 the Great Delevering will begin, and the true nature of this debt-based economy will emerge. That nature is; boom, and then bust.
To beat my natural optimism out of me you'd better bring a couple of friends, a Louisville Slugger (Frank Robinson Model), a couple of crowbars and a picnic lunch, cuz it's gonna take a while
SK, yes, you are right. But even if we say that 50% of their 55 billion Super Senior Subprime thin margin leveraged, trapeze artiste assets are gone, they've still got capital.
I guess we are going to have to wait, but I did read through their 3rd Q earnings release (no longer available), and at the time it struck me that they would be selling some ops because they'd be disposing of a lot of liabilities along with those ops.
The thing about thin margin leveraged, trapeze artiste (so darned true!) banking is that if you reserve anywhere close to appropriately, sometimes selling assets allows you to lighten the load on the tightrope nearly correspondingly.
It's like those sloppy seconds. When you foreclose, you write them off, but you can usually sell the danged things for 10-15 cents on the dollar and clear off reserves related to them before you foreclose. This is going to be really interesting.
BTW do we have anybody really expereinced at analyzing financial institutions? It looks to me like Citi had on June 30 about $100 billion of cash and then there is an asset line item called "Fed Funds sold and securities re-pod" for $348 million. Anyone know if that is net cash or how one should think about that?
MP Mr. Rubin's first executive action should be to direct that half of all the lighting in the Citicorp building be turned off, thermostats set back to 59 degrees, and the paper clips and rubber bands on all incoming mail be re-used.
Oh, and no more Post-It notes, and bring your own ballpoints (BYOB).
MP, I'm going nuts because I can't remember the name of a bank that did just that!!!
I can't see how they can keep paying dividends either. I think they have to sell some ops, cut dividends and can the corporate jets for a while. Needless to say, the jets and the bonuses will be the last to go.
Does anyone know what the Prince of Poor Performance's exit package was?
This press release is all about buying time, not about disclosing how deep the pit is.
The key to the future is Rubin using his insider influence to work a rescue deal between government and Citi.
If the rescue deal goes through, we'll only read about it in Ben Bernanke's autobiography in 20 year where he will go on about how he saved the financial world from collapse.
If it doesn't work, Ben Bernanke gets the blame now.
Rate cuts, rate cuts and more rate cuts. Dollar be damned.
I think you may be thinking of Ace Greenberg of Bear Stearns. He was famous for memos exhorting people to use both sides of paper, reusing paperclips etc.
David Pearson The chain reaction of credit contraction is underway.
Yes, that's the core finding of the weekend! This is self-feeding. One of the simplest ways of bolstering capital is simply not to renew those corporate loans.
This is from NACM's latest report # Electrical equipment: We're anticipating a slow down in sales for 2008.
Trucking: Delinquencies are increasing and potential bad debt is on the rise.
Plastics: We have had several companies closed due to their bank not renewing a loan.
Food: It is taking me at least 25% more time to collect the same money.
Transportation: Business is getting tougher, collections are much tougher and it looks like it will be this way for some time to come.
As we love to write here, the containment is spreading.
Regarding exit packages, just so you know Stan O'Neal got nothing additional for leaving. The entire package was already his under the MER plan that applies to all employees, of course his awards at the time they were made were larger. The only way the Board could have contested the unvested portion would have been to fire him "for cause." Sucking is not generally considered "cause." My guess is Prince leaves with what is already vested and his and they vest his unvested stuff in the same way.
BK is either based on cash flow or net asset value, right? - GaudiaRay
By law BK is based on net asset value where assets exceed liabilities... BUT that rarely if EVER become 'actionable' unless cash flow tanks. Cash flow crisis is almost always the precipitating event forcing a company to recognize their assets are now less than liabilities & seeks 'protection'.
Now if a company has a cash flow event BUT still has a lot of 'net worth'... assets > liabilities... they can fairly easily finance the short term cash flow short fall.
But they better have assets that are 'clean'... indisputably of high enough quality to justify the additional loans. I doubt all of Citi's assets meet that test. And with mark to model - who knows how the debt market will view Citi's holdings?
However events will not get close to that unless their operating cash flows aren't sufficient to cover debt service. As long as they have enough to operate and make debt service - there will be no BK. No one will even ask the tough question ... are their assets > their liabilities?
Now from an operational side it is possible Citi's cash flow might not be sufficient to meet ongoing debt service AND support the bloated organization Citi has become. It might not precipitate a BK but folks could get hurt just the same.
Look for a whole lot more lay offs and probably some fire sales of their operations. My guess is you will see all of this and more... they probably have a couple years worth of cuts & restructurings in them before BK is even considered.
That is unless they have a serious cash flow event, need cash NOW, and no one is willing to lend it to them. While that could happen to a Ford or an Enron - I don't see it happening to a bank like Citi. There is always the Fed window...
If the rescue deal goes through, we'll only read about it in Ben Bernanke's autobiography in 20 year
I'm betting on that scenario. We will see some banks going under, but it will be no citi.
The chain reaction of credit contraction is underway.
Absolutely. We will see the near-deflation in 2-3 months, I bet we'll see core CPI at 0.1% withing 2 monthly reports from now. 10-year Treasuries yield around 3% within 20 months.
Banker - as for the Post-It austerity campaign, it was a much smaller bank. I never heard that about Ace Greenberg, because I move in the peon circles of banking. Funny!
And I understand what you are saying about O'Neal, but there is an article on Bloomberg about the political ramifications: When O'Neal, 56, left Merrill earlier this week, almost all of the money he took with him was in the form of securities and retirement funds promised before this year. Still, O'Neal, who was forced out, shouldn't be rewarded for poor performance, Dodd said in an Oct. 31 interview in Washington. His committee may proceed with legislation aimed at reining in excessive executive pay, Dodd added.
Dodd knows he's in the wrong here, but he's clearly getting some pressure. If Prince gets a big package, I have a hunch that pressure will increase.
To save the housing and credit crisis:
1. FED to cut interest rate to 2%,
2. US dollar to devalve 20%,
3. To enable 1 million immigrant to invest $500K min on housing.
The focus on "severance" is just dumb in my view. Instead what ought to be done is pretty simple. Any corporate officer cannot sell shares in the two year [negotiable] period after he leaves. That punishes those who suck and makes it awfully hard for someone whose performance was shenanigan based to profit from them.
Conjure Bag apologizes because, as he just celebrated his 793d birthday, his memory is failing. He says there are at least two other memorable and appropriate uses of the "f" word:
"Can't they #$%&ing shred it faster?"
--Kenneth Lay, 2002
BTW do we have anybody really expereinced at analyzing financial institutions? It looks to me like Citi had on June 30 about $100 billion of cash and then there is an asset line item called "Fed Funds sold and securities re-pod" for $348 million. Anyone know if that is net cash or how one should think about that?
I second.
I can't read bank financials worth a GGD... mfg, I get... financials not so much.
I'd love to know how much cash they have, what to look for as far as 'burn rate' and what they could sell off & the effect it would have (how much time would it really buy).
I think that's part of their problem is even if they weren't in dire straights who could tell? Now its all 'perception'.
Surprising to see this many comments with no mention of Pakistan.
Pakistan was always the jewel in the crown. No one has to worry about Pakistan developing nuclear weapons.
Rubin got the Clintons' out of the stock market. Now, this press release is to get the few poor remaining doofisses out of C before they close the doors.
O puhleeze ! And I make no insinuations regarding argogast's intent and the book series ( Raj Quartet / Jewel in the Crown) and the dramatization IS good ( Auntie Beeb is good at these things, and if somebody points out that ITV made it, I'll strangle them ) - Raj Quartet - Wikipedia, the free encyclopedia
but it is about the BRITISH experience OF( IN is a very very difficult question) INDIA. I'd definitely recommend Salman Rushdie's Midnight's Children )http://en.wikipedia.org/wiki/Midnight's_Children
For the situation at hand as they are wont to say, I change channels to GEO TV ( FTA Rulez ) every so often - its back online - they ARE talking of the emergency but the freakin' ticker at the bottom is in Arabic script which I can't read and their Urdu is so freakin' chaste today - not a word of English or slang so I have great difficulty in understanding it. But it IS back online.
I don't mean to diminish the importance of this. It IS important.
"GR - Citi's capital is not gone. At the end of the 2nd quarter, they listed total assets of 2,220.9 billion. Now I would say that's inflated, but even if we throw out a good chunk of it, they've still got money, and a lot of it."
But C is so leverage that they only have 127B of stockholder equity to suppor the asset base. They borrow the other 2,093B. And all it take is about a 5.7% write off of their entire asset base to get shareholder 0 equity (They have a lot of safe asset, But given that the write off announcement is still using the mark to model valuation, who is to say that how many additional write off and how much is going to follow in the next 6-9 months.). I am with Banker, the next 6 months is going to be critical for all the banks. The rating agency will have to continue to cut the rating since all loans are doing progressively worse. And it is going to be a viscous cycle until everyone write off every single piece of crap. And someone mentioned that bank regulator are going through bank asset. It will be the dangerous time for the system to have mulitple bank write off big part of their port at the same time. They will all try to raise capital at the same time. Fun to be shorting bank by then. But will the regulator has the ball to call every one out and shoot them?
It's not about cash flow. What investor is about to say to Citi, "Let bygones be bygones." That's what's being asked here. Am I, the person who seeks profit, supposed to be charitable here?
CITI's people are serious business game players. They would and I'm sure have slit the economic throat of many a borrower and deal buyer. But now that they're on the ropes, they're begging for a time out?
Please... This is money. This is not a love fest.
Let's project the same RE decline percentage out just 6 more months. That's not asking a lot.
What will it look like? Super Highest Apogeetic debt instruments, previously lettered by the Moody/S&P Newsletter writers as Quantuple AAAAA will be worth 10 to 15 cents on the dollar.
And please stop focusing on their red herring they're frantically waiving. Sub-prime is toxic; so what; I will not nod my head in approval that CITI now "understands" it has a problem with sub-prime. They were disingenuous and again are doing it to the naive.
The real issue facing CITI in the US is commercial RE loans. It's still mark to fantasy time because there's no recession (read the USG's reports), and there is nobody on God's green earth who can guarantee there will be one. OK, have it your way.
I'm looking out 6 months and wondering where CITI will experience a loss of another $40 Billion.
At that point, they're toast. They have $80B that's "real". (Oh, I just heard them say they have unrecognized gains on their RE holdings, like the buildings they may own...more red herrings...time to chum the waters of confusion and placation.)
They just dropped what? $15B - $20B?
That's about 20-25% they're admitting to.
Can anyone else see $40B more?
After all MOM just said they have $2T in assets. Are there no other losses to bring forward?
Got the picture? Citi's not alone. There plenty of others, and they're not all just in the USA.
The discussion here is not the BK of Citi and the incompetence of their Board. That's small potatoes.
The discussion I think is how to continue the economic system the world's chosen to exist within. And please don't tell me that time and confusion will allow us to muddle through. The worst hasn't even started. We're at square 2 of a dozen squares, with lots of unintended outcomes. It's brainiac time, not genuflection to guys who game the system.
Gaudia - if they keep paying their bills... meet their debt obligations & fund operations as always even if asset values decline on paper... no one is even gonna ask the question what's the real net worth. They'll just assume there is worth there or there wouldn't be cash flow.
Asset values = PV of discounted cash flows... got cash flow then assume assets worth something.
It really does take a 'cash crisis' to precipitate the mind change needed to really shake this up.
But that might be what is happening - the story would be in the remittances to the RMBS & CDOs & SIVs... ultimately coming from the mortgages. If the cash isn't coming in that cash crisis might not be far off .
sn- "I wonder when Citi depositors will start to think, hmmm...just to be on the safe side maybe I should yank the cash?"
If I was a prudent cash manager, and held demand deposits that exceed the FDIC limit, I would be asking my assistant:
'Do we have any money in Citibank?'
If my assistant answered affirmatively, I would instruct her/him to move it, just to be on the safe side. After all, it's what a prudent man would do, isn't it?
IMO the key to evaluating financial companies is get a good handle on the haircuts needed for assets with special risks, the potential profits on sale of parts of the business saleble at "high" prices and ballparking the rest.
This can be done in an approximate nature for many financial institutions despite the problem of hidden assets and liabilities. However, Citicorp is so large and in so many different businesses my techniques would take a lot of time and hours(days) to get an estimate of even modest quality.
mp - many corporations are required to move funds once its bank goes below certain capital levels and other markers of health. We saw tons of Texas money move out in the 80s due to corporate resolutions. Citi is too big to fail and will get the mother of all bailouts and/or breakups guided by state and federal regulators so there is really no need to pull money out of CITI.
vicjim- "However, Citicorp is so large and in so many different businesses my techniques would take a lot of time and hours(days) to get an estimate of even modest quality."
Jesus, man, why wrap yourself around an axle. There are a lot of GOOD banks out there who aren't writing off $20 billin. Come on, Mr. Money Manager, make a decision. Safety or Citi? You can do it!
Even if my deposits did not exceed the FDIC limit, I would be thinking do I really want to chance not being able to get ahold of my money for a while (maybe just a short time but who knows) until the regulators sort through the whole mess?
And it's fair to ask just how easy it will be to sell off assets into a market where every potential acquiror is hoarding cash.
Exactly. Especially if they are worrying about their cash flow streams.
One of my prof's (who had done a number of turn arounds) would say...
"Companies don't pay their bills with 'net worth' they pay their bills with cash... They can sometimes trade 'net worth' for cash but they still pay their bills with cash. As long as they can continue to generate cash they are solvent no matter what their balance sheet looks like."
But when the cash is gone and they can't get it from either operations or borrowing - they are insolvent no matter what their balance sheet says.
I just wonder where we are on that spectrum. Are these guys generating sufficient cash?
Gee, FFDIC, I can just see you explaining to your CEO why you didn't pull your deposits out of Citi.
FFDIC: "Gee, Mr. CEO, I figured Citi was too big too fail and, even if they did, there was FDIC protection!"
CEO: "FFDIC, Citi is one of many banks with which we do business. Why didn't you just move the *^&%ing money? Now we have to wait six months to get it."
So as I go about my biz, I often have CNBC-Worldwide on, and I just listened to some reporter from New Delhi saying that radio and television stations in Pakistan are OFF the air.
Freakin' lying toad - Didn't I just say I can get GEO TV - and there are some real people on there - not some marionettes - and its not some repeat - it even says EMERGENCY at the bottom of the screen! Jeez. I tell ya - it makes ya sick to see reporters just saying things without checking the truth of it. Have they ALWAYS done it and its only now with the advent of modern day capture of sat signals by any ole Tom Dick and 'Arry that they can be busted ?
FYI, I don't think there's a reason for a depositor stampede out of CITI.
BK invites a buyer, an intervention, a USG or international consortium deal, possibly. What? (I'm not on the Citi Board. They forgot to send me the $17M I deserve for not telling them to buy sub-prime trash. So, I don't really care how they try to save their bacon; but I don't want it done by sticking the world once again. I worked for a top drawer IB long in the past. They were touts; and their view then as like now, "We don't know what will materialize in the future; so we can't advise." It was at a time similar to this one. It's no different now; same tune. Only this time the economic blocks collapsing are huge and major pillars in the Western World... R/E values; construction and all their related industries, with the multiplier effect doing what it always does. And this time, it's super senior quantities of debt that are also getting cancelled.
MOM, as to an audit, let's cut out the technicals. It is irresponsible not to look at the details. Stock analysts do that daily. Questioning the company is normal investment biz practice. I apologize if the word, "audit", was construed by you to mean that we get to play "manager". It's my job as an investor to examine closely what appears to be mole hill; the SIV's and the subprime are merely sections of an infrastructure which are clearly landmines. Are there zero others? The SIV, if on the balance sheet, will terminate another 25% of net equity. Hello Out There! And they've told us about this one, most reluctantly. Commercial RE is the big-boy. Hundred million dollar buildings soon carried as REO's. Cute, very, very cute.
The issue I'm interested in is systemic; not this hard-knuckled toughie who played so recklessly they have been IMO mortally wounded. Why care about that? The SEC and the boys on the Hill will do the post-mortem.
I care about maintaining the system in the face of inability to contain any part of this, and in the face of a Wn, DC leadership who have lost their credibility (and who should resign so others who are not tainted with the appearance of impropriety can take the reigns and possibly regain world financial public's trust.) Ah, but I wish alchemy was possible too.
CEO may be wrong, of course. You might get the money in a day, or a week. Let's say it's a week (7 days) and you've got $2 million deposited there. Well, that's $14 million dollar days of lost interest, isn't it? All of a sudden, Mr. Cash Manager isn't looking so prudent, huh?
As long as we're pondering things that could cost them cash, how about an increase in short term rates due to a dollar crisis? Where's that on the radar?
Without being 'irresponsible' and talking BK, there are lots of reasons to have the jitters.
Mr. Rubin's first executive action should be to direct that half of all the lighting in the Citicorp building be turned off, thermostats set back to 59 degrees, and the paper clips and rubber bands on all incoming mail be re-used.
Another bank recently implemented the exact same cost saving measures.
Though the boss did spring for snazzy green rubber bands.
btw, I was watching some Peter Schiff on FOX BC via youtube tonight, and him trying to explain that consumer credit was going to be the next subprime was like the protagonist in Idiocracy talking about what electrolytes really were.
mp- Citi's bailout or whatever it becomes known as will be as smooth as glass for depositors. The regulators will make sure of that. There will be no waiting or a minimum waiting period of perhaps a long weekend (Friday, Saturday, Sunday & maybe Monday at the most). The regulators had experience with this when every large Texas bank except Cullen Frost (San Antonio based) failed during the 80s and early 90s. Citi being the largest US bank will get special depositor preference treatment due to massive pubilicity which the Feds will want to dominate and control. No FEMAs on FDICs watch you can be sure of that. Whatever is done will not adversely impact insured or uninsured depositors in a material way. Read some history about the Texas bank failures and the massive sums of depositor money involved then.
I doubt C is toast, but its dividend should be, and no more share repurchases for a decade or so. They should also be pulling back on making new loans, since they have so much less tang equity to support them. C survives but as a much smaller institution.
First to ask...is it too late to short these A-holes stock?
Probably not but I may buy some skf instead to be conservative.
ok, let's see. Goldman WAS down to 180 back in the last credit hit, now back up to about 230. You think you are too late on shorting? Hell no. The question is, do you have the balls to hang on to them as long as you need to. I dropped my skf midway through the post july recovery, but id be better off already if I held it, seeing as what has happened the past few days. Many more shoes to drop Id say.
Just think, if M-LEC was up and running, Chuck would still have a job and Citi would've differed the write-down!
Ouch, indeed. I read through Citi's release, and they really can't state where it's going to go from here, either.
Expired
Prince out Rubin in temp...
Anyone bet Rubin didnt want that job but figured, "if I dont take it, Citi disappears"?
MaxedOutMama, the press release is stunning - this could just be the beginning of the write downs! They claim they will be able to maintain their dividend - I doubt it.
These losses are very dependent on house prices - "fair value of these super senior exposures is based on estimates about, among other things, future housing prices" - I'd love to see their estimate of future price declines (they are probably too optimistic.)
What happens if one of those many Citi pier loans goes bad? Ouch.
Best to all.
Accordingly, Citi has no plans to reduce its current dividend level.
Didn't AHM say the same? I am expecting citi to drop dividend on a friday evening, and then.......some people will need to look for a new bank for their deposits
Its ok he will most likely become a US ambassador somewhere in the world...nothing to see here..move along.
Somone here said $10 billion, wow! and with more to come...
"You're right, I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars next year. You know, Mr. Thatcher, at the rate of a million dollars a year, I'll have to close this place in... 60 years."
Losses? Oh, those losses! It may be 8, could be 12. It's all paper you know, very dependant on how the market valuation cycles up and down. We don't want to worry about it to the exclusion of our serious business here. Besides, if you have to ask how much you really would not understand the answer. Say, these handcuffs are such a bother, is all this fuss really needed?
Why all the pussyfooting around here folks?
Citi and many of the major banks are BK based on liabilities exceeding their shareholder equities.
The denial (read that as refusal to project a high probability) here is disappointing.
What's next? (Explaining the next step of minutia isn't gonna help us plan proactively.) Does some syndicate buy Citi and the rest? With the disappearance of equity, the LTV ratios will immediately power the drop in lendable funds. Normal borrowers will find themselves strangling and drop like Hussein.
What is impossible not to see is the breadth of the corporate and municipal walking-dead. That's on the one side. And on the other, the super-rich have just learned coupon-clipping is seriously damaging to one's economic health.
So, what's next?
This news is hitting all the financials, that's for sure. I noticed several medium term puts went up 400% on Friday.
Don't know about tomorrow -- index futures are currently down about .3% -- but next bounce I'm backing up the truck for puts.
So what does everyone estimate that Citi's losses will ultimately be now that they have shown their cards? They have laid out all their CDO types and amounts. My first guess would be that the CDO's and subprimes would lose 40% (43 billion would give a loss of 16 billion) and that the other 11.7 billion would have a loss of 20% giving a loss of 2 billion. That gives a total of 18 billion of losses and they are recognizing 8 billion now - so another 10 billion write down coming.... Of course this is a huge guess, but maybe some of you have a better guesstimate.
Jack Staub, et al, the way I read the press release, all of the complex subprime exposures discussed related to the risk of assets actually listed on Citi's balance sheet.
As bad as this is, the details of deficient capital through 2Q 2008 (based on Citi's projections) appear exclusive of the $80 billion dollar SIV problem. At least, that's the way it reads to me - have I missed something?
When Goldman is going to talk about their dirty laundarie ?
IMO, CITI's disclosure here is an obfuscation. It's smoke & mirrors.
Anarchus, you're correct, there's no mention of SIV. And as mentioned above, there's no mention of pier loan positions. And there's no mention of Commercial RE positions.
CITI is BK. Is there any other conclusion, honestly???
Forgot to mention, no mention of Alt-A, Jumbo and oh, yes, they're lenders to what were ongoing businesses. Might they have lines open to RE/Construction and related companies?
Where do I send the flowers?
With all the bad news the last few days, obviously the stock market will absolutely boom this next week.
Some of the comments above are simply irresponsible.
At this juncture, it is safe to assume two things, credit is about to get much tighter, and the hedge fund universe is going to enter a contractionary period.
With all the bad news the last few days, obviously the stock market will absolutely boom this next week.
Gawd I hope so... that'll make my PUTs all that much cheaper.
Some of the comments above are simply irresponsible. risk capital
Absolutely! Failure to explore a reasonable probability is inexcusable.
Ignoring the filthy lucre for a moment, spare a moment or two for the eulogies. Excerpts:
"Chuck has been an extraordinarily committed leader....
We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders.
Citi has extraordinary people and the Board is committed to working together with them... We are fortunate that Chuck will continue to serve the Company in an advisory capacity...
Mr. Rubin said, "The Board and I have tremendous respect for Chuck's leadership and his accomplishments over the years...its formidable competitive advantages. Citi... tremendously talented employees, who are our most important asset..."
Man, I didn't get anything like this when leading Bath University Field Hockey as it played rival Cardiff Uni.. And we won ! And then there was the time Reading Bridge Club... And we aren't even talking about biz wins...
Makes ya wanna puke.. There is an awful stench to all this.
-K
Anarchus, I agree with you -- the SIVs were not addressed. If M-LEC is dead, which I believe it is, and C is forced to consolidate their SIVs, which I believe they will, then their write-downs are going to grow considerably.
This, from the WSJ article, is almost comical:
". . . . But it is Mr. Rubin, the highest profile member of the star-studded board, who has been a particular lightning rod for criticism. His murky responsibilities -- and lucrative pay package -- have fostered resentment. Last year, he collected a total of about $17.3 million in salary, bonus and stock awards, making him Citigroup's second-highest paid executive after Mr. Prince, according to the company's proxy statement. To some past and current Citigroup executives, and to investors, the pay seems excessive considering Mr. Rubin's nebulous duties."
And Rubin's sophisticated response to a query from the Journal was apparently, "The board is a very strong board and a very good board."
Kind of like Crosy, Stills and Nash:
Our Board, is a very, very, very strong board,
With subprime in the yard,
Financial life is hard,
Now everything is stinky 'cause of you.
Last I looked, futures were down about 6 on the S&P (at 8:30 pm easern). Also, I read that Citi is up 5% in Tokyo (probably includes the 4% after hours on Friday), even though Japanese banks are getting hit. Next week will be interesting. One idea is that C is worth more without Prince. But if the write offs that we are discussing today are more than expected, that should hurt the stock. In any case, I am holding a lot of puts on banks, mostly mid-sized ones (not C), but also COF (Capital One) and Mer on the larger cap side. I don't really see how changing the CEO helps much beyond a day or two. Mer really bounced when their CEO was sacked last week, and then it collapsed. Perhaps Citi will do the same.
CR, the most amazing thing is that "future housing values" bit you picked up on. Having looked at their quarterly results earlier, they have another problem. They are increasing reserves for international consumer loans too.
And then, those piers.... The is a major league kick in the face.
GaudiaRay, I think to say that Citi is BK is irresponsible. Bankruptcy will only come from poor cash flow plus writedowns AND the inability to sell off lines of business sufficient to cover those losses. That's quite an assumption at this point for Citi. I am dubious that Citi's capital position is as good as they claim in that release, true, but I don't think you know what you are writing about. I'm not intending personal discourtesy with that observation. My intention is to present an alternate view.
I'm not fond of Citi, but let's keep our heads.
If the figures on Yahoo finance are somewhat accurate, Citi prior to this release has about 125 billion book value. If they have to take 20+plus billion in charges, this 8 plus additional on the super CDOs; they will have to shrink their balance sheet to maintain capital ratios. Their book value could shrink by 40 plus billion.
At one times book, the stock is in the low 20s, maybe even the teens. There still is a big haircut in the making.
Do these figures assume house prices start going up next week?
AC - Citi is one of the big boys that is beginning to require significant downpayments in "declining areas". Therefore I would think that they would have trouble calculating valuations on the basis of home prices turning up. Someone's going to have to sign off on the annuals, and be legally liable for those numbers. The whole point about turning over executives is that then you get to go to the confessional and blame it on the dear departed!!!
I think CR's confessional just got a major increase in traffic, though!
I'm with MOM. No need to assume that C and the rest of the US banking system will collapse next week. There's a good chance that the stock will go up some after last week's big hit. Will the decline in US financials continue next week unabated? Can the NADQ 100 keep going up, when most of the increase is due to four companies (GOOG, MSFT, RIMM and AAPL)? And what about oil and gold? Will the market lose confidence in the Emerging market? Tune in on Monday.
I guess the question is at what point does a company with a trillion dollars in assets become insolvent?
The ABCP could easily produce $30b easy(according to some ABX pricing),+ the PE mess could produce $3b in losses (at a minimum), I guess the question is how can citi categorize for the bridge financing(ie pier loans) accountig wise?
The point of the MLEC was to stringing out these losses over a couple of quarters, but their future deal volume was gonna trend down anyway, so write offs could extend out a year +
It's a mess, rule #1?
Never have a lawyer run anything beyond a law firm.
MoM, isn't Rubin in a pretty compromised position for taking a "big bath" in the fourth quarter and blaming it all on Prince?
Not to mention but that IF Rubin tried that, you'd expect that Prince might be able to leak stuff to the press placing some responsibility for the big bath on Rubin's shoulders . . . . . . . that's why I didn't think that the stock market would react that well if Rubin stepped in for Prince because Rubin really isn't that different from Prince in terms of responsibility or as an agent for change. And then of course Citi stock is up +5% in Tokyo! Shows you what I know.
No need to assume that C and the rest of the US banking system will collapse next week.
Week after next?
This bust won't bottom until after at least one major IB and several major public HBs have gone under.
145 visitors at 8:30 pm CST...interesting times we live i
w/ MLEC it might have taken 6 mos. to 1 year or more for real prices to be discovered. Now they will be known much sooner. The vultures will not have to wait as long and, ultimately, the total pain will be less.
The economy IS more resilient than often seems possible. But I am sure (willing to bet big time) that home prices and the housing market have a long ways to go down--much more than companies holding morgage debt can stomach. I also agree that BK for some of the major public home builders is very likely and will shake up the banks and "deep value investors." In the meantime, however, it's very risky for bears to get too greedy buying puts and going short without watching the short and medium term technical indicators. I learned this last fall when I lost a lot during the rebound in housing stocks. I was right that the housing recovery at that time was bogus, but being right did not equal making good investments.
MaxedOutMoma.."Bankruptcy will only come from poor cash flow plus writedowns AND the inability to sell off lines of business sufficient to cover those losses."
BK is either based on cash flow or net asset value, right?
Let's talk "writedowns". What's the value of their SIV position, their CRE position? Is it Level 3? Are there newly lain floors to asset values?
When C is forced by its drop in net asset value to jettison outstanding loans (as in sell them in a buyers' market), are we supposed to believe they have a year or so to do it?
Their capital has vanished. The consequences are immediate. Or do they have a Federal Get Out of Jail Card from Bernanke and Paulson, and oh, BTW, is that legal?
I forgot, Rubin will waive a wand and make it legal.
We are looking at writedowns, as in truth observing, not waiting for them to tell the world anything. They've lied, they've withheld, they've tried to stick the US taxpayers with the M-LEC consequences...long term loans on high risk paper as the economy is heading into unknown lower price territory.
The C folks are very bad people. I'm not saying that all bankers are not thieves if they can get away with it. It's been that way for 30 years that I know of. But when the music stops, it is time to count the people without chairs, and Citi has many, many, many.
We must look honestly and disinterestedly. We must not wear blinders and not examine what's in front of us. Arthur Anderson is no longer with us because their partners and managers refused to conduct a responsible audit. IMO, this forum is the best place for the world to conduct this audit.
We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders.
You one funny dude. LOL
=======================
RE: anarchus
Prince might be able to leak stuff to the press placing some responsibility for the big bath on Rubin's shoulders . .
You bet - Its no coincidence IMO that they throw a senior exec off the yacht at Bear and we get these salacious stories about Jimmy "Cagney" Cayne ( yeah old joke, what is the current joke ?). We are gonna have some fun in the next few months and the SEC and the Fed prosecutors had better staff up to handle people turning Queens evidence.
"Oh, what a tangled web we weave when first we practice to deceive" - Walter Scott
-K
The American banks no longer rule the world financial stage and will be busy the next few years trying to fend off lawsuits arising from their Enron style accounting Depts not to mention those pesky Congressional hearings who just love a fall guy during an election cycle. Rubin will be busy but his position is political rather then financial in nature as he attempts to keep the howling wolf's at a distance.
Anarchus Isn't Rubin in a pretty compromised position for taking a "big bath" in the fourth quarter and blaming it all on Prince?
Well, that's why they put out this release now.
I don't disagree with your remarks on Rubin. Sure, the man is bright, but a good part of what we are really confronting now are the results of dismantling some of the post-Depression regulations, and he was a major player in that. But the point of appointing Rubin is to generate confidence, and Rubin's political pull is an implicit statement that Citi will be seeking dispensations and indulgences right along with its confessional visits.
rc and MOM, you are right, C is not bankrupt, today.
They will fall to that within one year, though, with the upcoming avalanche of write-downs that will come out of our recession (now underway) (moving to depression).
The fun has just begun, and is now rapidly accelerating.
citi up in tokyo by 5% in early trading....ummm keep reading as only 5-6k shares traded. not much of a story..story begins tomorrow morning
Does appear to be picking up speed lately, doesn't it?
Is the noise about Citi covering up the sounds of other shoes dropping?
CR, MOM, Banker or other smart and informed people have some info to post?
Any Black Swans seen taking off?
speaking of ballz, getting time to pull the trigger on QID!
Rubin will be busy but his position is political rather then financial in nature as he attempts to keep the howling wolf's at a distance.
You bet, the revolving door between Wall Street and DC. Make a few campaign contributions, pay a little fine without admitting wrong doing, lay low, pass all they can off on the taxpayer, and than back to ripping off main street during the next cycle. SOS
They emphasize that these rightdowns reflect security price declines AFTER End September. in principle the other banks need to make similar writedowns.
Citi is the worst of the worst, they made as many bad bets as everybody else combined, without a way to work the float like BofA and JPMChase can.
$11B for Citi alone? b-b-but Ben Stein, Fox News, the AEI, the WSJ Op Ed page, and NRO have been telling us this problem was "grossly overstated", and these folks have a really firm grip on reality.
In a more serious tone, IMV high home valuations are a blessing now, not a curse, since they can NOW GO DOWN, providing welcome leeway for middle America trying to make ends meet in the face of rising energy costs, defense spending, interest rates, and G-d Forbid, taxes.
'course, there's a foreclosure between most folks and these new lower housing costs, but that's the way the cookie crumbles.
I thought Citi's disclosure here was VERY strong and will be seen that way by the buy-side. The problem is that because not all these securities/loans are required to "mark-to market" getting a real handle on things from the outside remains very difficult. Also, those mezz tranches have got to be a mess, don't they? It looks to me like a $7 billion hit to net income is a minimum here. Two other points. The idea that Citi has six-eight months to replenish its capital base seems optimistic to me. Life is going to get tougher here for a few months, not easier. I'd be looking hard at the dividend if I were on the Board. I wonder what a consortium of KKR, Texas Pacific, Blackstone, Harvard, Yale and Apollo would charge for a $5 billion convertible preferred?
smehta also makes a good point.
Life is going to get tougher here for a few months, not easier.
Why the "few months" qualifier, Banker?
Alec,
To answer your insolvency question, any major bank or IB goes down when it can't roll its CP. That was the trigger for Drexel, Hutton and, but for Buffet, would have killed Solly.
Mr. Rubin said, "The Board and I have tremendous respect for Chuck's leadership and his accomplishments over the years...its formidable competitive advantages. Citi... tremendously talented employees, who are our most important asset..."
Well, compared to Citi's other assets...
TJ,
Because anyone who tries to look out any longer is guessing and history says these situations generally get dealt with in that kind of time frame.
I know, I know depression, cats and dogs sleeping together yada yada
More seriously TJ,
My few months reference is to the financing/management crisis Citi may be entering and its ability to finance and manage its way through it, not to any wider economic issues.
GR - Citi's capital is not gone. At the end of the 2nd quarter, they listed total assets of 2,220.9 billion. Now I would say that's inflated, but even if we throw out a good chunk of it, they've still got money, and a lot of it.
Now their earnings from US consumer business dropped a lot over the last year. They tried to expand internationally, and their earnings release for 3rd Q (now apparently withdrawn) showed that they were having troubles there. Cash flow is an issue for them. Still, they can afford to sell a lot at a big, big loss. Naturally, it would make their shareholders profoundly unhappy.
They are a big, big operation that can afford to take major losses. NetBank they are not.
Believe me, no one on this board is able to audit Citi. If anyone does have access to the information, that person or persons is bound by confidentiality. You really do seem to be writing wildly to me.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of
(a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and
(b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which include:
b1. approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and
b2. $10 billion of high grade ABS CDOs and
b3. approximately $8 billion of mezzanine ABS CDOs and
b4. approximately $0.2 billion of ABS CDO-squared transactions.
Now, after all that has been discovered that triple A no longer means triple A, An additional 8-11 Billion is absolutely NOT ENOUGH. The majority of the $55 billion is fictitious.
Is there any way to determine how much of their remaining subprime exposure, whether direct or via super secret, er senior, tranches of CDOs is first vs. second liens? I'm predicting (for no better reason than the pattern of REO sales prices I observe) that loss severity in seconds used for downpayments (i.e. the 20 part of 80/20 100% LTV deals) is going to approach 100% over the next 3 to 5 years. My sense was that seconds were extra popular with the CDO crowd since their spreads were larger and thus more amenable to elaborate structures.
Is it just me or does "Super Senior Tranches" seem like a really goofy name? Kind of like the "super secret decoder ring" you could get with 4 box tops and $4.95 for shipping and handling.
Banker,
The IBs are only dealing with the fallout from the most obvious wretched excesses. The broad economic consequences haven't even really hit yet ("Dude, where's my recession?"). Unless you think a new boom is right around the corner, it's more like a few years than a few months.
Because anyone who tries to look out any longer is guessing...
Well, I must be guessing a whole lot better than you are.
Banker - won't C have to sell some stuff? I'm going on their income trends, etc, plus the now-withdrawn 3Q earnings release.
It seems to me that they have to hoard capital now. Depending on how Basel II is applied, I suppose they could get some significant help from it. But that won't reassure the analysts, assuming that the big 2007 increases in the "Securities and Banking" cat fall back to 2006 levels.
"Alec,
To answer your insolvency question, any major bank or IB goes down when it can't roll its CP. That was the trigger for Drexel, Hutton and, but for Buffet, would have killed Solly."
-- Is this not exactly what is happening with the SIVs? They cannot roll their commercial paper, right, and they are shrinking balance sheets by selling assets.I see each of these SIV's as non regulated baking companies, who are rapidly shrinking their balance sheets, ironically in the same brutal fashion as the multiple banking liquidity crises enforced in the 1800's.
Mr. Rubin said, "...Citi... tremendously talented employees, who are our most important asset..."
What a hoot! The most important asset, my friends, is C-A-S-H and Citigroup doesn't have it.
Conjure Bag is sitting in his corner, smoking a Macunudo and laughing derisively. He says, "More writeoffs, more writeoffs coming!"
Meanwhile, the little mouse, known collectively as Citibank depositors, cowers in a corner, unable to find its mousehole and wondering when the cat will arrive.
Here's some more Citi data (from the June 10-Q)
In no order:
$2.2 trillion in assets, $127 billion in shareholders equity, about $80 of which is tangible, short term borrowings of $167 billion,
$10 billion in reserves for loan losses, $5-$6 billion in net income (quarterly), dividend of $2.7 billion quarterly,
The short term borrowings are the solvency issue here. Looks to me like the prident thing to do would be to cut the dividend and shore up tyhe tangibnlke net worth especially because between the third and fourth quiarter, it ain't going up from operations.
http://www.sec.gov/Archives/edgar/data/831001/000110465907058831/a07-21064_110q.htm
Banker,
Looks like you already answered my question. Thanks!
=================================
re MOM:
GR - Citi's capital is not gone. At the end of the 2nd quarter, they listed total assets of 2,220.9 billion.
When I look at the balance sheet, their liabilities are 2093 billion. 2220 - 2093 = 127 B as shareholder equity according to me.
Citi - Investor Relations
I can't find a 10Q for Q3 btw, so I'm quoting numbers from Q2 as you are I expect.
IMO, you can't quote assets without mentioning liabilities especially when you are talking about thin margin leveraged, trapeze artiste( and people think bankers are staid and stuffy) businesses like banks.
-K
TJ,
When one guesses that there will be a recession over a 5-10 year time frame, that isn't even a guess, it's just a flip of the coin. Citi won't just sit there and wallow, they'll act. More broadly, no recession anhd next year is better than what the fourth quarter will be. I'm a consensus guy this time around.
MOM,
I haven't tried to apply Basel, so you may be ahead of me there. I suspect selling parts of the company will happen no matter what else happens going forward.
smehta,
I do think that's what we are and will continue seeing with the SIV's. BTW, I don't know where you've been hiding, but please stick around, that is the second really good insight you've provided on this thread.
SK,
It is really even tighter than you note. $40 billion of that shareholders equity is goodwill.
My apologies to all for my lack of proofing above.
"These losses are very dependent on house prices"
That's the variable with the steep slope!
GR - Is your BK suggestion based on current or projected conditions. Some supporting details would be great.
So C is sitting on a load of super seniors, who is holding on to loads of ...
Have there been any equal historic times in which two major CEOS have been ousted from banks in ust a few weeks?? Outside of the 1930's. Seems like everytime I turn around something hasn't happened since the great depression.
Mr. Rubin's first executive action should be to direct that half of all the lighting in the Citicorp building be turned off, thermostats set back to 59 degrees, and the paper clips and rubber bands on all incoming mail be re-used.
Oh, and no more Post-It notes, and bring your own ballpoints (BYOB).
High Grade Super Senior tranches.mmmm,no worries.
Regualtor(s) should halt dividends.
Joe Banks,
Funny you ask that, it really struck me as well. In the last 25 years or so no two heads for the same overall financial problems no. Now I'd bet a nickel or so that in the mid-1980's a whole bunch of S&L guys got the boot in close proximity.
Do you think there will be any credibility at all around their statement maintaining the dividend? As news gets out and folks start to examine the specifics, doesn't cutting/stopping the dividend just jump out as the most logical finger in the dike? I don't understand how anybody, especially in the financial press, can conclude otherwise ??
More broadly, no recession and next year is better than what the fourth quarter will be.
Yeah, right... we'll see. We'll beat that optimism out of you yet.
Now I'd bet a nickel or so that in the mid-1980's a whole bunch of S&L guys got the boot in close proximity.
Yeah and I'd bet a nickel or so the taxpayers will take it in the poop shoot in close proximity just like they did then.
FFDIC- Regualtor(s) should halt dividends.
Don't worry, they will if the board doesn't.
RE: Banker
$40 billion of that shareholders equity is goodwill.
Yup - what the man said.
From a numerical math perspective, when you subtract one LARGE number from another LARGE number and end up with a pretty small number my antennae really twitch as to any meaning I can assign to it. I almost want to treat it as zero - from a trading perspective I recall dissecting KKD balance sheets and could see a sure fire winner in the way they were "buying" franchise owned stores(11% contribution) and as company owned stores(81% contribution ) justtt in time for their Q results - mannn it really boosted their income. People have GOT to see thru this I thought. 2 years ( 2YEARS ) of these shenanigans and many XXXX $ lost in puts, shorts, THEN people get it.. So it goes.
And that CEO, Livengood( what a name ! geddit ? ) never went to jail either.
-K
I don't have any idea whether citi is or isn't solvent, for sure. If we get 20% home price declines next year there won't be any doubt.
What is clear is that the overall rate of decline has picked up furiously. The lows will get lower and the big equity drops will become more frequent and sharper, spreading to include more market segments, as credit tightens and the consumer says uncle. Sentiment? Anger is almost certain as is a lot of 401k seling, spelling capitulation.
I can't wait to see the expression on Kumblow's face.
Nothing happens in isolation. Caution will be the watchword at Citi, and the risk management and auditing staff will uncharacteristically swagger through the trading floors. The best offense will be a good defense, and that won't change for years.
The upshot is stricter terms for credit. Stricter terms for prime brokerage clients, which forces hedge fund selling. Stricter terms for credit card customers, which reigns in spending. Stricter terms for every type of credit, no matter that the cost is lower asset prices and yet more losses. There is simply nothing unusual or unnatural in this process, nor is it a "six sigma" event.
The chain reaction of credit contraction is underway. It can't be stopped because its reached critical mass: critical mass occurs when the actors have more to gain from cutting their losses than they do from keeping their levered assets on life support. Please realize that the balance sheets of the big wall street firms all ballooned in 3q -- they were definitely not cutting losses. This may have to go on for one more quarter as they swallow more SIV assets, but by 1q08 the Great Delevering will begin, and the true nature of this debt-based economy will emerge. That nature is; boom, and then bust.
TJ,
To beat my natural optimism out of me you'd better bring a couple of friends, a Louisville Slugger (Frank Robinson Model), a couple of crowbars and a picnic lunch, cuz it's gonna take a while
SK, yes, you are right. But even if we say that 50% of their 55 billion Super Senior Subprime thin margin leveraged, trapeze artiste assets are gone, they've still got capital.
I guess we are going to have to wait, but I did read through their 3rd Q earnings release (no longer available), and at the time it struck me that they would be selling some ops because they'd be disposing of a lot of liabilities along with those ops.
The thing about thin margin leveraged, trapeze artiste (so darned true!) banking is that if you reserve anywhere close to appropriately, sometimes selling assets allows you to lighten the load on the tightrope nearly correspondingly.
It's like those sloppy seconds. When you foreclose, you write them off, but you can usually sell the danged things for 10-15 cents on the dollar and clear off reserves related to them before you foreclose. This is going to be really interesting.
Mr. Rubin said, "...Citi... tremendously talented employees, who are our most important asset..."
What a hoot! The most important asset, my friends, is C-A-S-H and Citigroup doesn't have it.
Oh, trust me - a good con man is very hard to find these days.
BTW do we have anybody really expereinced at analyzing financial institutions? It looks to me like Citi had on June 30 about $100 billion of cash and then there is an asset line item called "Fed Funds sold and securities re-pod" for $348 million. Anyone know if that is net cash or how one should think about that?
Er $348 billion, not million.
Conjure Bag remembers eleven occasions in human history where the use of the "f" word was completely justifiable:
-- Capt. E. J. Smith of RMS Titanic, 1912
10 . "What the @#$% was that?"
-- Mayor Of Hiroshima, 1945
-- Custer, 1877
-- Einstein, 1938
-- Picasso, 1926
-- Pythagoras, 126 BC
-- Michelangelo, 1566
-- Amelia Earhart, 1937
-- Noah, 4314 BC
-- Bill Clinton, 1998
-- Saddam Hussein, 2003
Conjure Bag now believes there's now a new addition to the list:
-- Robert Rubin, 2008
MP Mr. Rubin's first executive action should be to direct that half of all the lighting in the Citicorp building be turned off, thermostats set back to 59 degrees, and the paper clips and rubber bands on all incoming mail be re-used.
Oh, and no more Post-It notes, and bring your own ballpoints (BYOB).
MP, I'm going nuts because I can't remember the name of a bank that did just that!!!
I can't see how they can keep paying dividends either. I think they have to sell some ops, cut dividends and can the corporate jets for a while. Needless to say, the jets and the bonuses will be the last to go.
Does anyone know what the Prince of Poor Performance's exit package was?
This press release is all about buying time, not about disclosing how deep the pit is.
The key to the future is Rubin using his insider influence to work a rescue deal between government and Citi.
If the rescue deal goes through, we'll only read about it in Ben Bernanke's autobiography in 20 year where he will go on about how he saved the financial world from collapse.
If it doesn't work, Ben Bernanke gets the blame now.
Rate cuts, rate cuts and more rate cuts. Dollar be damned.
MOM, the name of the bank was:
US BANK
MOM,
I think you may be thinking of Ace Greenberg of Bear Stearns. He was famous for memos exhorting people to use both sides of paper, reusing paperclips etc.
David Pearson The chain reaction of credit contraction is underway.
Yes, that's the core finding of the weekend! This is self-feeding. One of the simplest ways of bolstering capital is simply not to renew those corporate loans.
This is from NACM's latest report
# Electrical equipment: We're anticipating a slow down in sales for 2008.
Trucking: Delinquencies are increasing and potential bad debt is on the rise.
Plastics: We have had several companies closed due to their bank not renewing a loan.
Food: It is taking me at least 25% more time to collect the same money.
Transportation: Business is getting tougher, collections are much tougher and it looks like it will be this way for some time to come.
As we love to write here, the containment is spreading.
I am still waiting for the other shoe to drop. This IS NOT all there is.
They should have poached that guy named Percy out of CA if they really wanted these disjointed parts to run together. This was a mistake. Egos!
Lets start a pool on the exit package - I's say $250M. What say you?
MOM and Barely,
Regarding exit packages, just so you know Stan O'Neal got nothing additional for leaving. The entire package was already his under the MER plan that applies to all employees, of course his awards at the time they were made were larger. The only way the Board could have contested the unvested portion would have been to fire him "for cause." Sucking is not generally considered "cause." My guess is Prince leaves with what is already vested and his and they vest his unvested stuff in the same way.
BK is either based on cash flow or net asset value, right? - GaudiaRay
By law BK is based on net asset value where assets exceed liabilities... BUT that rarely if EVER become 'actionable' unless cash flow tanks. Cash flow crisis is almost always the precipitating event forcing a company to recognize their assets are now less than liabilities & seeks 'protection'.
Now if a company has a cash flow event BUT still has a lot of 'net worth'... assets > liabilities... they can fairly easily finance the short term cash flow short fall.
But they better have assets that are 'clean'... indisputably of high enough quality to justify the additional loans. I doubt all of Citi's assets meet that test. And with mark to model - who knows how the debt market will view Citi's holdings?
However events will not get close to that unless their operating cash flows aren't sufficient to cover debt service. As long as they have enough to operate and make debt service - there will be no BK. No one will even ask the tough question ... are their assets > their liabilities?
Now from an operational side it is possible Citi's cash flow might not be sufficient to meet ongoing debt service AND support the bloated organization Citi has become. It might not precipitate a BK but folks could get hurt just the same.
Look for a whole lot more lay offs and probably some fire sales of their operations. My guess is you will see all of this and more... they probably have a couple years worth of cuts & restructurings in them before BK is even considered.
That is unless they have a serious cash flow event, need cash NOW, and no one is willing to lend it to them. While that could happen to a Ford or an Enron - I don't see it happening to a bank like Citi. There is always the Fed window...
I'm betting on that scenario. We will see some banks going under, but it will be no citi.
Absolutely. We will see the near-deflation in 2-3 months, I bet we'll see core CPI at 0.1% withing 2 monthly reports from now. 10-year Treasuries yield around 3% within 20 months.
Banker - as for the Post-It austerity campaign, it was a much smaller bank. I never heard that about Ace Greenberg, because I move in the peon circles of banking. Funny!
And I understand what you are saying about O'Neal, but there is an article on Bloomberg about the political ramifications:
When O'Neal, 56, left Merrill earlier this week, almost all of the money he took with him was in the form of securities and retirement funds promised before this year. Still, O'Neal, who was forced out, shouldn't be rewarded for poor performance, Dodd said in an Oct. 31 interview in Washington. His committee may proceed with legislation aimed at reining in excessive executive pay, Dodd added.
Dodd knows he's in the wrong here, but he's clearly getting some pressure. If Prince gets a big package, I have a hunch that pressure will increase.
To save the housing and credit crisis:
1. FED to cut interest rate to 2%,
2. US dollar to devalve 20%,
3. To enable 1 million immigrant to invest $500K min on housing.
By law BK is based on net asset value where assets exceed liabilities
Completely bass ackwards... lia > assets. Grrr.
Sucking is not generally considered "cause."
That's what Clinton said eatin ani't cheatin.
MOM,
The focus on "severance" is just dumb in my view. Instead what ought to be done is pretty simple. Any corporate officer cannot sell shares in the two year [negotiable] period after he leaves. That punishes those who suck and makes it awfully hard for someone whose performance was shenanigan based to profit from them.
I can't wait to see the expression on Kumblow's face.
My guess is he says its 'Bullish because now we know the worst is behind us...'
Conjure Bag apologizes because, as he just celebrated his 793d birthday, his memory is failing. He says there are at least two other memorable and appropriate uses of the "f" word:
"Can't they #$%&ing shred it faster?"
--Kenneth Lay, 2002
"#$%^, you first."
--Donner Party, 1846
BTW, Banker, I'm naturally optimistic. It's just your medium-term outlook that needs adjusting. Will a nerf bat and a super soaker do the job?
BTW do we have anybody really expereinced at analyzing financial institutions? It looks to me like Citi had on June 30 about $100 billion of cash and then there is an asset line item called "Fed Funds sold and securities re-pod" for $348 million. Anyone know if that is net cash or how one should think about that?
I second.
I can't read bank financials worth a GGD... mfg, I get... financials not so much.
I'd love to know how much cash they have, what to look for as far as 'burn rate' and what they could sell off & the effect it would have (how much time would it really buy).
I think that's part of their problem is even if they weren't in dire straights who could tell? Now its all 'perception'.
MP - Grundhofer! King of the Grinches, Mr. Buy-Your-Own-Paperclips.
Bingo! MOM, you get the prize!
Surprising to see this many comments with no mention of Pakistan.
Pakistan was always the jewel in the crown. No one has to worry about Pakistan developing nuclear weapons.
Rubin got the Clintons' out of the stock market. Now, this press release is to get the few poor remaining doofisses out of C before they close the doors.
WSJ - Why Citi Struggles to Tally Losses, Swelling Write-Downs Show Just How Fallible Pricing Models Can Be
Why Citi Struggles to Tally Losses - WSJ.com
tremendously talented employees, who are our most important asset
many of whom will be getting a pink slip stocking stuffer.
===================
re : arbogast
Pakistan was always the jewel in the crown.
O puhleeze ! And I make no insinuations regarding argogast's intent and the book series ( Raj Quartet / Jewel in the Crown) and the dramatization IS good ( Auntie Beeb is good at these things, and if somebody points out that ITV made it, I'll strangle them ) - Raj Quartet - Wikipedia, the free encyclopedia
but it is about the BRITISH experience OF( IN is a very very difficult question) INDIA. I'd definitely recommend Salman Rushdie's Midnight's Children )http://en.wikipedia.org/wiki/Midnight's_Children
For the situation at hand as they are wont to say, I change channels to GEO TV ( FTA Rulez ) every so often - its back online - they ARE talking of the emergency but the freakin' ticker at the bottom is in Arabic script which I can't read and their Urdu is so freakin' chaste today - not a word of English or slang so I have great difficulty in understanding it. But it IS back online.
I don't mean to diminish the importance of this. It IS important.
-K
"GR - Citi's capital is not gone. At the end of the 2nd quarter, they listed total assets of 2,220.9 billion. Now I would say that's inflated, but even if we throw out a good chunk of it, they've still got money, and a lot of it."
But C is so leverage that they only have 127B of stockholder equity to suppor the asset base. They borrow the other 2,093B. And all it take is about a 5.7% write off of their entire asset base to get shareholder 0 equity (They have a lot of safe asset, But given that the write off announcement is still using the mark to model valuation, who is to say that how many additional write off and how much is going to follow in the next 6-9 months.). I am with Banker, the next 6 months is going to be critical for all the banks. The rating agency will have to continue to cut the rating since all loans are doing progressively worse. And it is going to be a viscous cycle until everyone write off every single piece of crap. And someone mentioned that bank regulator are going through bank asset. It will be the dangerous time for the system to have mulitple bank write off big part of their port at the same time. They will all try to raise capital at the same time. Fun to be shorting bank by then. But will the regulator has the ball to call every one out and shoot them?
Regualtor(s) should halt dividends.
FFDIC
It's not about cash flow. What investor is about to say to Citi, "Let bygones be bygones." That's what's being asked here. Am I, the person who seeks profit, supposed to be charitable here?
CITI's people are serious business game players. They would and I'm sure have slit the economic throat of many a borrower and deal buyer. But now that they're on the ropes, they're begging for a time out?
Please... This is money. This is not a love fest.
Let's project the same RE decline percentage out just 6 more months. That's not asking a lot.
What will it look like? Super Highest Apogeetic debt instruments, previously lettered by the Moody/S&P Newsletter writers as Quantuple AAAAA will be worth 10 to 15 cents on the dollar.
And please stop focusing on their red herring they're frantically waiving. Sub-prime is toxic; so what; I will not nod my head in approval that CITI now "understands" it has a problem with sub-prime. They were disingenuous and again are doing it to the naive.
The real issue facing CITI in the US is commercial RE loans. It's still mark to fantasy time because there's no recession (read the USG's reports), and there is nobody on God's green earth who can guarantee there will be one. OK, have it your way.
I'm looking out 6 months and wondering where CITI will experience a loss of another $40 Billion.
At that point, they're toast. They have $80B that's "real". (Oh, I just heard them say they have unrecognized gains on their RE holdings, like the buildings they may own...more red herrings...time to chum the waters of confusion and placation.)
They just dropped what? $15B - $20B?
That's about 20-25% they're admitting to.
Can anyone else see $40B more?
After all MOM just said they have $2T in assets. Are there no other losses to bring forward?
Got the picture? Citi's not alone. There plenty of others, and they're not all just in the USA.
The discussion here is not the BK of Citi and the incompetence of their Board. That's small potatoes.
The discussion I think is how to continue the economic system the world's chosen to exist within. And please don't tell me that time and confusion will allow us to muddle through. The worst hasn't even started. We're at square 2 of a dozen squares, with lots of unintended outcomes. It's brainiac time, not genuflection to guys who game the system.
dryfly,
I think that's part of their problem is even if they weren't in dire straights who could tell? Now its all 'perception'.
You inspired me to write this.
"...the next 6 months is going to be critical for all the banks."
Duh. 'Ya think? Show me your list. Who goes first?
I wonder when Citi depositors will start to think, hmmm...just to be on the safe side maybe I should yank the cash?
Gaudia - if they keep paying their bills... meet their debt obligations & fund operations as always even if asset values decline on paper... no one is even gonna ask the question what's the real net worth. They'll just assume there is worth there or there wouldn't be cash flow.
Asset values = PV of discounted cash flows... got cash flow then assume assets worth something.
It really does take a 'cash crisis' to precipitate the mind change needed to really shake this up.
But that might be what is happening - the story would be in the remittances to the RMBS & CDOs & SIVs... ultimately coming from the mortgages. If the cash isn't coming in that cash crisis might not be far off
.
sn- "I wonder when Citi depositors will start to think, hmmm...just to be on the safe side maybe I should yank the cash?"
If I was a prudent cash manager, and held demand deposits that exceed the FDIC limit, I would be asking my assistant:
'Do we have any money in Citibank?'
If my assistant answered affirmatively, I would instruct her/him to move it, just to be on the safe side. After all, it's what a prudent man would do, isn't it?
And it's fair to ask just how easy it will be to sell off assets into a market where every potential acquiror is hoarding cash.
Re: Analyzing financial companies.
IMO the key to evaluating financial companies is get a good handle on the haircuts needed for assets with special risks, the potential profits on sale of parts of the business saleble at "high" prices and ballparking the rest.
This can be done in an approximate nature for many financial institutions despite the problem of hidden assets and liabilities. However, Citicorp is so large and in so many different businesses my techniques would take a lot of time and hours(days) to get an estimate of even modest quality.
mp - many corporations are required to move funds once its bank goes below certain capital levels and other markers of health. We saw tons of Texas money move out in the 80s due to corporate resolutions. Citi is too big to fail and will get the mother of all bailouts and/or breakups guided by state and federal regulators so there is really no need to pull money out of CITI.
vicjim- "However, Citicorp is so large and in so many different businesses my techniques would take a lot of time and hours(days) to get an estimate of even modest quality."
Jesus, man, why wrap yourself around an axle. There are a lot of GOOD banks out there who aren't writing off $20 billin. Come on, Mr. Money Manager, make a decision. Safety or Citi? You can do it!
Even if my deposits did not exceed the FDIC limit, I would be thinking do I really want to chance not being able to get ahold of my money for a while (maybe just a short time but who knows) until the regulators sort through the whole mess?
And it's fair to ask just how easy it will be to sell off assets into a market where every potential acquiror is hoarding cash.
Exactly. Especially if they are worrying about their cash flow streams.
One of my prof's (who had done a number of turn arounds) would say...
"Companies don't pay their bills with 'net worth' they pay their bills with cash... They can sometimes trade 'net worth' for cash but they still pay their bills with cash. As long as they can continue to generate cash they are solvent no matter what their balance sheet looks like."
But when the cash is gone and they can't get it from either operations or borrowing - they are insolvent no matter what their balance sheet says.
I just wonder where we are on that spectrum. Are these guys generating sufficient cash?
Gee, FFDIC, I can just see you explaining to your CEO why you didn't pull your deposits out of Citi.
FFDIC: "Gee, Mr. CEO, I figured Citi was too big too fail and, even if they did, there was FDIC protection!"
CEO: "FFDIC, Citi is one of many banks with which we do business. Why didn't you just move the *^&%ing money? Now we have to wait six months to get it."
Citi: http://icanhascheezburger.files.wordpress.com/2007/10/128347587844687500fail.jpg
Cheers,
prat
Citi? The devil they know vs the devil they don't [yet] know?
re: Pakistan and the emergency
So as I go about my biz, I often have CNBC-Worldwide on, and I just listened to some reporter from New Delhi saying that radio and television stations in Pakistan are OFF the air.
Freakin' lying toad - Didn't I just say I can get GEO TV - and there are some real people on there - not some marionettes - and its not some repeat - it even says EMERGENCY at the bottom of the screen! Jeez. I tell ya - it makes ya sick to see reporters just saying things without checking the truth of it. Have they ALWAYS done it and its only now with the advent of modern day capture of sat signals by any ole Tom Dick and 'Arry that they can be busted ?
-K
FYI, I don't think there's a reason for a depositor stampede out of CITI.
BK invites a buyer, an intervention, a USG or international consortium deal, possibly. What? (I'm not on the Citi Board. They forgot to send me the $17M I deserve for not telling them to buy sub-prime trash. So, I don't really care how they try to save their bacon; but I don't want it done by sticking the world once again. I worked for a top drawer IB long in the past. They were touts; and their view then as like now, "We don't know what will materialize in the future; so we can't advise." It was at a time similar to this one. It's no different now; same tune. Only this time the economic blocks collapsing are huge and major pillars in the Western World... R/E values; construction and all their related industries, with the multiplier effect doing what it always does. And this time, it's super senior quantities of debt that are also getting cancelled.
MOM, as to an audit, let's cut out the technicals. It is irresponsible not to look at the details. Stock analysts do that daily. Questioning the company is normal investment biz practice. I apologize if the word, "audit", was construed by you to mean that we get to play "manager". It's my job as an investor to examine closely what appears to be mole hill; the SIV's and the subprime are merely sections of an infrastructure which are clearly landmines. Are there zero others? The SIV, if on the balance sheet, will terminate another 25% of net equity. Hello Out There! And they've told us about this one, most reluctantly. Commercial RE is the big-boy. Hundred million dollar buildings soon carried as REO's. Cute, very, very cute.
The issue I'm interested in is systemic; not this hard-knuckled toughie who played so recklessly they have been IMO mortally wounded. Why care about that? The SEC and the boys on the Hill will do the post-mortem.
I care about maintaining the system in the face of inability to contain any part of this, and in the face of a Wn, DC leadership who have lost their credibility (and who should resign so others who are not tainted with the appearance of impropriety can take the reigns and possibly regain world financial public's trust.) Ah, but I wish alchemy was possible too.
Off the box and on to 123.
CEO may be wrong, of course. You might get the money in a day, or a week. Let's say it's a week (7 days) and you've got $2 million deposited there. Well, that's $14 million dollar days of lost interest, isn't it? All of a sudden, Mr. Cash Manager isn't looking so prudent, huh?
CR,
Thanks for keeping us up to date and for the forum. Great place. Nite all.
Banker and all, thanks for all the great comments!
Best to all.
As long as we're pondering things that could cost them cash, how about an increase in short term rates due to a dollar crisis? Where's that on the radar?
Without being 'irresponsible' and talking BK, there are lots of reasons to have the jitters.
I'm at a bar drinking my profits away, but a good question to ask would be: What is Citi's deposit/customer base compared to JPMChase/BofA?
Citi seems to have a much more geographically restricted base compared to the other 2, at least domestically.
I forgot; since may people are poopoohing stagflation, may I suggest an alternate phrase to a enviornment of inflation and below growth trend output?
Intractio
Mr. Rubin's first executive action should be to direct that half of all the lighting in the Citicorp building be turned off, thermostats set back to 59 degrees, and the paper clips and rubber bands on all incoming mail be re-used.
Another bank recently implemented the exact same cost saving measures.
Though the boss did spring for snazzy green rubber bands.
Intractionary Alec,
Pleased to make your acquaintance.
Dammit, I still have $11.58 in my Citi online savings account . . . (they suckered me in with their 5% promo earlier this year).
So, ~where~ exactly is the $5000 @ 2.9% for life I owe the big C on their balance sheet statement? Cash? Short term? Long term assets? ? ?
btw, I was watching some Peter Schiff on FOX BC via youtube tonight, and him trying to explain that consumer credit was going to be the next subprime was like the protagonist in Idiocracy talking about what electrolytes really were.
mp- Citi's bailout or whatever it becomes known as will be as smooth as glass for depositors. The regulators will make sure of that. There will be no waiting or a minimum waiting period of perhaps a long weekend (Friday, Saturday, Sunday & maybe Monday at the most). The regulators had experience with this when every large Texas bank except Cullen Frost (San Antonio based) failed during the 80s and early 90s. Citi being the largest US bank will get special depositor preference treatment due to massive pubilicity which the Feds will want to dominate and control. No FEMAs on FDICs watch you can be sure of that. Whatever is done will not adversely impact insured or uninsured depositors in a material way. Read some history about the Texas bank failures and the massive sums of depositor money involved then.
C'mon folk they SAVED 2BN - 3BN in corporate income taxes (with more to come no doubt).
You people are just a glass half empty crowd....
PS BTW, how much children's health care does 2-3BN pay for???
I doubt C is toast, but its dividend should be, and no more share repurchases for a decade or so. They should also be pulling back on making new loans, since they have so much less tang equity to support them. C survives but as a much smaller institution.