UPDATE 1-Citi to consolidate SIVs onto balance sheet
| Reuters

A little bit more here

Cal, I'm unable to open that link. Is it just me?

Fine, my link didnt work, search businesswire.com for Citigroup and you will find it.

Here is the release:

"NEW YORK--(BUSINESS WIRE)--Citi announced today that it has committed to provide a support facility that will resolve uncertainties regarding senior debt repayment currently facing the Citi-advised Structured Investment Vehicles (“SIVs”).

This action is a response to the recently announced ratings review for possible downgrade by Moody’s and S&P of the outstanding senior debt of the SIVs, and the continued reduction of liquidity in the SIV related asset-backed commercial paper and medium-term note markets. These markets are the traditional funding sources for the SIVs. Citi’s actions today are designed to support the current ratings of the SIVs’ senior debt and to allow the SIVs to continue to pursue their current orderly asset reduction plan. As a result of this commitment, Citi will consolidate the SIVs’ assets and liabilities onto its balance sheet under applicable accounting rules.

Several key factors further contributed to Citi’s decision to make this commitment:

The SIVs continue to successfully pursue alternative funding strategies, primarily asset reductions, to meet maturing debt obligations. The SIV assets (net of cash and cash equivalents) have been reduced from $87 billion in August 2007 to $49 billion currently, while maintaining the overall high credit quality of the portfolio. Citi expects orderly asset reductions will be sufficient to meet liquidity requirements through the end of 2008, which currently total $35 billion. Consequently, Citi expects little or no funding requirement from the facility.
As assets continue to be sold, Citi’s risk exposure, and the capital ratio impact from consolidation, will be reduced accordingly.
Given the high credit quality of the SIV assets, Citi’s credit exposure under its commitment is substantially limited. Approximately 54% of the SIV assets are rated triple-A and 43% double-A by Moody’s, with no direct exposure to sub-prime assets and immaterial indirect sub-prime exposure of $51 million. In addition, the junior notes, which have a current market value of $2.5 billion, are in the first loss position.
Taking into account this commitment, Citi still expects to return to its targeted capital ratios by the end of the second quarter of 2008. Based on September 30, 2007 capital ratio disclosures and applying the current asset levels in the SIVs, the estimated impact of this action would have been approximately 16 basis point decline in the Tier 1 capital ratio and approximately 12 basis point decline in the TCE/RWMA ratio.
“Our team has made great progress managing the SIVs in a very difficult environment. After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs,” said Vikram Pandit, Citi’s Chief Executive Officer.

The terms of this committed facility will be finalized in early 2008 and will reflect market te

The commitment is independent of the “Master Liquidity Enhancement Conduit” (“M-LEC”). Citi continues to support the formation of the M-LEC, which is an initiative that involves Citi and other financial institutions.

Attached are additional fact sheets regarding the SIVs and the committed support facility.

Citi, the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Citi’s major brand names include Citibank, CitiFinancial, Primerica, Smith Barney and Banamex. Additional information may be found at Citi - Home or citi.com

Certain statements in this document are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information about these factors is contained in Citigroup's filings with the Securities and Exchange Commission.

ADDITIONAL FACTS ON THE CITI-ADVISED SIVs

Profile of the SIV assets and liabilities as of December 12, 2007:

Average Credit Quality (1,2)
Average Asset Mix Aaa Aa A

Financial Institutions Debt 60% 14% 43% 3%
Sovereign Debt 1% 1%
Structured Finance:
MBS – Non-U.S. residential 12% 12%
CBOs, CLOs, CDOs 6 6
MBS – U.S. residential 7 7
CMBS 3 3
Student loans 5 5
Credit cards 5 5
Other 1 1
Total Structured Finance 39% 39%
Total Assets 100% 54% 43% 3%
The weighted average maturity of the assets is 3.7 years

(1) Based on Moody’s ratings.

(2) The SIVs have no direct exposure to U.S. sub-prime assets and have approximately $51 million of indirect exposure to sub-prime assets through CDOs which are AAA rated and carry credit enhancements.

Amount Outstanding Average Rating Average Maturity

Commercial Paper $10B A-1+/P-1 2.4 months
Medium Term Notes 48B AAA/Aaa 10.1 months

OTHER INFORMATION

Through asset reductions, the SIVs have partially repaid the previously disclosed $10 billion commitment to purchase commercial paper. As a result, Citi now holds $7.2 billion of commercial paper issued by the SIVs as of December 12, 2007. Citi expects the SIVs to fully repay the commercial paper at or before the last maturity date in mid-March 2008. Following the final maturity date, the new facility is expected to be the sole commitment by Citi to the SIVs.
The Citi-advised SIVs

Um, ah, oh.
Financial institution debt 60%.
Isn't that a lovely high concentration. Hmmmmm.

Whose debt?
Commercial Paper $10B A-1+/P-1 2.4 months- wow in 3 months they hope to be out of this- good luck!!!
Medium Term Notes 48B AAA/Aaa 10.1 months 10 months for this?

Okay, yeh, sure.

Someday this war's gonna end...

what Basel II risk level do you apply to the SIV assets? Were these already accounted for at 100% credit conversion factor, i.e. as if they were on balance sheet?

Obituary for Super Siv:

Caring, loving friend of fraudulent bankers, died suddenly last night of natural causes. Mr. SIV, the illegitimate child of Treasury Secretary Henry Paulson, lived short, yet spirited life. His most noted accomplishments were the painful and successful squeezing of short sellers, and perhaps his crowning achievement, to delay the discovery of faultily priced MBS.

Plus Citi gets to borrow money at the auction on Monday.

very good news, if I might say so.

In Memory of M-Lec:

YouTube - Sesame Street - Somebody Come and Play (original)

< jg, a new CEO gets about 6 months to blame the problems on his predecessor. Then the honeymoon is over. Pandit probably saw huge losses coming - why wait? Blame them on Prince and move on.>

You say the "honeymoon" is over in six months?

I'll bet it's "GAME OVER FOR CITIGROUP" in six months...

"CR nailed it - Pandits got a 6 month honeymoon - he's going to clean house and blame it on the dancing guy."

But it's so sad that that should mean anything at all. Why should blame have any effect on what the company should or shouldn't do? It's sad if such important decisions at such a large and powerful company are being made based on 'blame' or a 6 month 'honeymoon'.

I think some folks here need to face the risk that they have become overly negative, refusing to see positive steps staring them in the face:

1) Citi cut the problem in half ($100B -> $50B) through asset sales matched with retiring CP, before they even got to this point.

2) There have not, are not now, and will not be "fire sales" of SIV assets - I'm sure Citi isn't happy with the prices they've been getting, but the stuff is moving.

3) Citi will maintain Tier 1 ratios without undue heroics. IMHO, I expect no dividend cut and one more moderate capital raising event sometime next year, and even that may not be needed depending on operating earnings next few quarters. I predict the Morgan Stanley analyst for Citi, Betsy Graseck, will look foolish in less than 3 months.

Call me a blue-sky fool, if you will, but check all those "cliff-diving" charts at Markit, first...

I think it's time for some CR/Tanta analysis of numerous recent tea leaves along the lines of "holy crap! the world may not end after all!" Those expecting the Great Depression of 2007 - 2033 may need to get their time machines to a mechanic...

Jerome-

you are correct, people are far too over-the-edge, this is due to the increase in morons with blogs.

This is very good near-term news, solely due to the realization that we are working towards measures that will ultimately lead to solutions.

That said, as discussed previously, balance sheets and the availability of credit are going to contract much further and that is not good for growth prospects.

If you have a 5 minute time horizon, crack the lemon chello, if it is longer, well, take a long nap.

Jerome Ball, you're probably right in the short term, but were you also one of those that said none of these current problems were going to occur and that all of these doom and gloomers here were overly pessimistic? How many of the professionals predicted the current mess? How many have changed the predictions now? How many predictions will get worse next month and the months after?

We'll see.

OK. Something I don't understand here. How could creating M-LEC and this news be both good for Citi and the market? If it's so great, why haven't they done it in the first place? Why push M-LEC?

poszi, you're talking as if things actually made sense in this market! This volitility is all about PERCEPTION of the immediate news -- none of it is about reality or long term investments, etc., or else it wouldn't be so volitile.

49 billion or 58 billion - who cares? Them's a lot of billions.

Given the months of contortions to keep the sludge OFF the balance sheet, how can this be spun as favorable to C?

I tend to doubt this is priced in, although the market reaction after hours was muted.

Countrywide Financial said on Thursday foreclosures had doubled in November, while late payments continued to rise amid the US subprime housing crisis

FT.com / Financials - Countrywide doubles foreclosures

"CB applauds Pandit's decision."

If the CB applauds this decision, why don't they encourage EVERYONE to mark-to-market EVERY bad loan and debt out there instead of coming up with ways to prevent that very thing?

The millions/billions bit is getting me to glaze over faster than a hot Holiday Rum Punch. There are 5 billion shares of Citigroup each worth $31. Think of this as $10/share rather $49 billion.

This is a good move for the long term but it will hurt in the short term. Citi's gonna have to raise more capital (at lower prices) and cut the dividend. But, for the long term, this is probably a good move because it says that Citi will stand behind its poop. Also, as CR noted, Pandit can take the losses and blame it on prince for a while. Why not just clean house and get a fresh start? Makes sense to me. But it's gonna be painful for current shareholders for a while.

Seriously, let's do the solvency numbers.

Citi's Equity + Yearly Profits - MLEC, Jr aka CitiSIV Obligations (current + probable assuming the trend in housing, as in anvil through the cheesecloth flooring, continues) [yes, that's an algebraic minus for those with an optomistic bent] - [algabraic, of course] CRE loans and other asset wonders populating Citi's balance sheet + next year's profits [to help stay above zero] equals what??

As solvency has been explained here when at zero and below to not be equal to bankruptcy proceedings, it appears Citi is insolvent without additional contributions from gigantic depositors who don't want their deposits to drop by much more than their newly-come-to-Citi-spirituality equity positions, and this all means more avoidance of stark reality...

...and here it is.

Loan:Equity ratios dropping when looked at objectively

Disgorgement of profitable assets as the garbage is unsellable at anything other than insolvency prices.

Major, though temporary, slam to the credibility and trustworthiness of Citi. Twisting the GS-man Paulson's arm to support a chimera and a recognized fraud by omission and comission, the MLEC, has severely damaged the credibility of Paulson and the integrity of the US Treasury in the eyes of the entire financial world. Pandit is not the white knight. Truth telling is not a virtue; it's a legal requirement.

A stunningly unsafe business environment for the next 3 years while the US RE prices, residential and commercial, continue to return to yield-positive pricing...which means Citi ain't gonna find investments to earn what it needs or did in the last 15 years.

As I've posted before, Citi is BK, based on the magical formula of 2 + 2 = 4.

Right now, Pandit has arrived with his handbag full of lipstick and he's painting the pig.

What else should he do GaudiaRay? Just close up shop and go home? This is what we've all been saying is the right thing to do, and now they've done it. We'll see what the consequences are, short term and long term, sometime in the future. Tomorrow's market reaction actually means NOTHING, because we all know that it will all be forgotten by Monday, and stock prices will be reacting to some different news, up or down.

Fellow bloggers, the IB's and commercial B's have gamed the world's economies.

They have seriously damaged the future security of millions of people who depend on their communal savings institutions to protect their stores of value.

Now I'm not talking about a sociopath like tanman who sold loans to fraudsters and who knew totally what the downside looked like; he's white trash as far as I see it.

I'm talking about the square mile and wall street well heeled and well educated who clearly understood the consequences of their churn & burn behavior.

Every one of those people could have claimed the high moral ground and refused to be "in". Instead, they whored themselves out of unvarnished greed, and they built a derivatives pyramid standing on its pointy head.

What do I want? I want the feds and the eurocrats to do just what they did to Arthur Andersen. There are plenty of other banks who will fill the shoes of Citi. There's nothing special about Citi or Wells or NR or any of them. There's nothing special about Bear Stearns or Merrill.

Their employees will find jobs in the companies who buy up the pieces of these fraudulent companies. Fraud by omission is real. They failed to disclose because disclosure of risk, other than in legalese, and I was one of those monkeys, would have been a deal-breaker. It's like AA failing to audit obviously risky assets.

Bust'em. And create in the world's remaining financial community a sense of fear that they will get wiped out too if they fail to disclose, in their chase for the golden ring.

Nobody will care but for the major depositors who are unfortunately not FDIC insured.

Failure to cleanse this gaming table of this ilk will do nothing but extend the new game of hide the garbage, yet another unproductive allocation of resources and time.

ooops!

Sorry for the anon post.

You can tell I am a big drinker!

Truthfully? We were already able to tell before that

Asia markets currently Red, not impressed with all this negative talk about their main squeeze, U.S.A.
Big banks in trouble, consumer tapped out-not the kind of news you want to hear if you are running a manufacturing plant in Asia or Germany for that matter.

This is nothing new.

Economic Scene; Citicorp's Step: Mixed Effects - The New York Times

$3.5 billion in 1987

"This is nothing new.

The New York Times > Member Center > Site Help > Server Error ful...756C0A961948260

$3.5 billion in 1987
Zigurrat | 12.13.07 - 10:14 pm"

That was almost exactly 5 months before the Black Monday!

The government was last night preparing a contingency plan for a possible new year nationalisation of Northern Rock as it held last-ditch talks with the potential buyers of the stricken bank.

Venezuelan socialists nationalize profitable oilfields. Anglo-saxon capitalists nationalize failing banks.

Are the capitalists supposed to be smarter than the socialists?

with pork flavoured Kool-aid i might add...

I'm wondering if everyone is really short C or have puts.

Or is this is just bluster.

They have lost 40% of their market cap over the last few months - $100 billion. So it's not like they haven't been punished.

They were buying back stock @ 50 share and recapitalizing @ 30/share.

Steve

"it's easy to find blame, but very hard to figure out how needed mortgages will be funded going forward."

Needed for who though? To save the system or to burdon the homebuyer who is better off renting.

The obvious solution if it can be managed is for home prices to become more affordable again.

dotcommunist-

rotflmao (:

David Pearson has this exactly correct. The end result is a dramatic tightening of credit and far greater risk of recession.

The markets are disconnected from the reality of the situation at the moment. The fed funds rate is going much lower and yields will likely be depressed for a prolonged period.

The next shoe is commodities and hedge funds(couldn't happen to nicer people).

Tough period ahead, but, manageable.

This was a very good move by Citi, but, the economic implications are widespread.

One more thing-

for all you "the world is coming to an end types",

remember one thing, the "dead soldiers" will eventually all be lying below the enablers.

i know the citi is the biggest but i want a story on gs which seems the smartest...can we have thread on those $4B they made when everyone else was losing left and right?

p.s. no, i'm not ben stein's fa

iceman, I saw those numbers scary.

CR, You had a post last month charting DSL's NPA. Can you update that por favor, when you get a chance. Remarkable growth!

"Core's a joke. It should be marginalized, since it's totally irrelevant."

It's easier justify inflating away the debt by throwing money out of helicpoters to bailout the banks if they use the core rate and it keeps retail sales rising due to pass threw inflation even as demand is falling.

From Krugman's latest column:

The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity. If prices fall 30 percent, that number would rise to more than 20 million.

this, and not SIVs or conduits, is citi's problem. by themselves, these structured finance problems would be survivable.

but citi has $2.2tn in assets over $120bn in equity. with $312bn in loans secured by real estate and another $90bn in unsecured consumer loans.

we love to discuss the esoteria here, and their structured finance exposure can surely weaken them -- but it's their plain old whole loan portfolio that can kill them.

"For example, HSBC utimately was obligated to take its two SIVs onto its balance sheet under its credit guarantees."

This isn't true. HSBC may have provided some liquidity to the SIVs prior to the bailout, but total committed liquidity for the SIVs wouldn't have exceeded around 5% of the senior debt. That's the total extent that HSBC could have been obligated to support its SIVs. The same applies to other bank sponsors of SIVs. There's a lot of confusion between ABCP conduits, which usually have full liquidity support, and SIVs, which have minimal committed liquidity.

Krugman's tipped his hat to CR again. Get ready for 500 visitors online. Hope they behave.

"By showing it will play ball, Citi makes itself suitable for a bailout"

As much as I hate all the IBs and money center banks for all the greed and corruption and would like to see a few go under, this line makes the most sense to me. A true, "father I have sinned" moment, if they actually come clean. Good chance of that? Who knows.

Kou Jie- I don't know much about emerging equity markets other then I just felt that the easy money had been made and the big boys would be looking for other fish to fry, plus all the MSM financial types hawking the decouple theory seem to be complete nonsense. Anyway shorting emerging markets so far is a toss up, time will tell.

Krugman's tipped his hat to CR again.

From Krugman's latest column:

The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity. If prices fall 30 percent, that number would rise to more than 20 million.
.

Idoc,

Crap...sorry read a repost of a repost.

Cheers,

dryfly,

The packers are quite safe. Other WI producers maybe not.

Packers.com » History » Fast Facts » Shareholder & Financial History

Cheers,

dryfly,

OOOh, then that was much more ironic than I thought. Gotta go upstairs and reread.

step step step...hmmm

step step step...

That was kinda deep then.

Cheers,

I'm a Bills fan...but I've always had a soft spot for the Packers. Great organization. And I lived in Milwaukee for a few years as well.Way OT...

I'd love to see BF and the Cheese heads go to the SB this year, but the EVIL NE Patriotacts would likely crush them...and I don't want to see that. Rather the Dallas Cowpukes get a Patriotact waterboarding.

Cheers,

I look forward to the day when I can once again buy a U.S.-made pair of shoes.

I don't. But I look forward to the day I can buy an American-made LCD or laptop. Low value-added labor-intensive stuff like shoes and clothes can stay offshore.

The significance of the SIV swallow is twofold:

1) Citi will be in the business of not lending. Multiply by the other banks pressured to take in their SIV's and you get a credit crunch.

2) The bank will have to reserve against the SIV assets, which means more losses ahead. Capital ratios are a moving target in this environment, not a static one. Raise $8b one quarter, gone in losses the next...

Whatever the stock does tomorrow, the undeniable implication is that Goldman is right: $2tr in credit will disappear next year, and potentially more if the economy lapses into a recession. This would be negative for any economy (as a % of GDP), but much more so for one where leverage is the lifeblood of growth.

About that future...

I'm getting the feeling we should all start building Arks and looking for two of everything...

wooley bugger,

Yeah we could use another 200M killed by their communist gov'ts...be nice. Good fight...Bwahahahahaha

Amazon.com: The Black Book of Communism: Crimes, Terror, Repression (9780674076082): Mark Kramer, Jonathan Murphy, Stephane Courtois, Jean-Louis Panne, Andrzej Paczkowski, Karel Bartosek, Jean-Louis Margolin: Books

Enjoy..if you dare.

Cheers,

The fact that they could run 40% of it off and not run through all the junior notes under really bad market conditions leads me to think they won't have to take much more of a hit on this.

The horrible publicity cost them $5/share in market price.

There are 5 billion shares and the dividend is $2. The stock is already priced for it to be cut in half. That gives them $5 billion in additional capital plus earnings to continue writing down.

They will book every dollar they can at year end. Too bad they are capital constrained. Or maybe not. Two years of bad bonuses!

Seriously though, and it was mentioned way upstairs...this is about Shiti being able to put that shat into a package and the Taffy auctions. Remeber triple whitching Friday is coming up and the Fed has to get enough caish into the system to clear those contracts.

This ain't about liquidity or long term solutions, it's about next Fridays triple witching and the banks clearing those contracts. Very short term has Bernutty and pals.

Cheers,

"this is about Shiti being able to put that shat into a package and the Taffy auctions."

Are you saying they need cash? I would think they already had enough AAA stuff that they can't sell to fill their allocation.

They would never do it if they hadn't cleared it with their auditors - so it has to be bookable at year end.

Krugman has been spending too much time around here! Seriously, it's nice to see the blog get recognition and the msm to get a clue.

Zigurrat,

"Are you saying they need cash? I would think they already had enough AAA stuff that they can't sell to fill their allocation."

Are you being sarcastic, or serious?

The artificially rated AAA SIV stuff is first on the auction block.

We'll see..

Cheers, and good night.

"In 87 the Fed gave C a free ride by allowing them to use the loan loss reserve as capital"

Well unless this is all a plot to make it look like the US orinating banks are suffering as much as the foreign holders of this stuff - if it is not a plot - then it appears to me that these banks are already more or less insolvent - or are feared to be - otherwise there would be no crisis of confidance.