time for a repost for one of the best quotes related to Citigroup from the former CEO Prince....
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, youve got to get up and dance. Were still dancing".
On a previous thread regarding Citigrope, someone asked whether the job losses would occur in Indian call centers or the U. S. Well, let's not be cynical. If there are Indian call center workers for Citi, they are probably working for an outside contractor, maybe Citi cuts back on the offside contractor. Who knows?
If they are Citi young bankers rather than call center employees in India, India is a growth market for the middle class services. Then no cut backs.
In the U.S., the banking center is pretty much consolidated. If service sucks, your choices are other banks where the service will suck. Every person cut from the headcut in the U. S. saves $50 to $150 K per annum.
Where do think the savings compared to growth are gonna be at?
Cringely the tech commentator had a column regarding IBM and middle class American lay offs. Better read.
If I was the CEO of a big U.S. company, I'd outsource as many jobs to India as I possible could before the Dems get in and put a stop to it.
In fact, I would also outsource myself to a nice place somewhere in India, to get far, far away from all this crap here.
Did you catch any of the interviews done last nightwith Michigan's governor, who is a Democrat? She said: There is just one big issue today in Michigan -- the outsourcing of manufacturing jobs overseas. It's got to stop right now, she said. And she meant it.
Saudi prince Alaweed bin Talal is nephew of Late King Fahd. We should look at his money as strategically placed. So now look over to the Persian Gulf where the US is trying to develop a security structure that contains Iran. But the Saudis have to live there and they want good relations with the big Shia power.
So how has our foreign policy position been constrained by our coming and rattling the cup to the Saudi Royal family. They're getting something for their money.
Canadian Imperial Bank of Commerce, already reeling from its exposure to America's subprime meltdown, confirmed yesterday it will record another $2.46 billion (U.S.) in pre-tax writedowns after disclosing plans to raise $2.75 billion (Canadian) by selling stock, most of it to blue-chip investors
Actually India isn't the cheap dumping ground it used to be.
Six months ago I read that Indian programmers were getting paid 70% of those working in the Silicon Valley and that call center jobs which were considered prized 5 years ago are now looked on as lowclass.
The IT situation in India has gotten so expensive that the largest consulting firms are offshoring back to the United States (onshoring?) in places like Idaho.
By contrast, delinquency rates in our second mortgage portfolio are at historically high levels, particularly in the 90% LTV segment -- 90% and higher LTV segment as shown in the yellow box.
I blame Rob Dawg, he told the underwater owners to stop paying the seconds, and as always, he made a very persuasive argument.
1/15/2008 7:52:50 AM Tuesday, Merrill Lynch (MER) said it would augment its capital base by issuing $6.6 billion of mandatory convertible preferred stock in private placements to long-term investors, including Korean Investment Corp., Kuwait Investment Authority, and Mizuho Corporate Bank
1/15/2008 10:01:49 AM Tuesday, US Bancorp (USB) reported lower fourth-quarter profit, hurt by an industry wide settlement to Visa Inc. for certain litigation matters and losses from money market funds.
The Minneapolis, Minnesota-based bank delivered net income applicable to common equity at $927 million or $0.53 per share, down from $1.18 billion or $0.66 per share in the same quarter last year. Net income for the quarter stood at $942 million, in comparison with $1.19 billion a year-ago.
i think Brian is officially in the hat tip hall of fame!
bacon dreamz | 01.15.08 - 10:01 am | #
Do you think we will get a head-shot?
Napolean | 01.15.08 - 10:33 am | #
BTW- I think the fuss about Meredith Whitney was because we're not used to seeing a pretty face on the blog, and so it was a little shocking. Maybe if CR posted one everyday we could become inured to it. Just a thought.
Sovereign To Take $1.58 Bln Charge In Q4; Raises Loan Loss Provision - Update [SOV]
1/14/2008 9:23:42 AM Monday, Sovereign Bancorp, Inc. (SOV) said it expects to record about $1.58 billion in charges in the fourth quarter due to the continued deterioration of the housing market and rising defaults among home loans.
The Philadelphia, Pennsylvania-based bank noted that the continued volatility in the financial markets and deterioration in the credit environment are expected to adversely impact its fourth quarter 2007 financial results
No pretty faces, too distracting and hopeful. Same goes for Ivy, don't post pics.
If I wanted financial cheesecake, you could post pics of Warren and Charlie.
That is what makes me happy.
More moola. After all I have a retirement to fund that I want to be comfortable and secure, unlike the typical boomer.
Ever wonder why that old dude Dennis Hopper is cranking out those Amex commercials for financial services? Could it be he partied too much and doesn't have enough moola?
This certainly doesn't strike me as a new broom sweeping clean, sadly. Unfortunately, the whisper numbers would have been much more aggressive and positive for C's long-term outlook. Couple that with these issues in consumer credit and I see them hemorrhaging money for some time to come, particularly without important trims where employees literally no longer have markets to work in.
I'm starting to smell some hedge fund panic in the market, combined with other hedge funds aggressively going short. It's getting to the dog-eat-dog point with hedge funds.
Emerging markets may start rolling over soon. EEV up big today as yen hits long-time high and hedge funds bail on carry.
What will the combined 4th Q look like? Here is the FDIC's take on Q3:
FDIC-insured commercial banks and savings institutions reported net income of $28.7 billion for third quarter 2007, the lowest quarterly total since fourth quarter 2002. Quarterly loan loss provisions soared to a 20-year high, and market-related noninterest revenues declined. The average return-on-assets fell to 0.92 percent, the lowest quarterly average since fourth quarter 1992
The C and MER writeoffs get the ink but does anyone have any insight into the sales of C -- 25% of last year's quarter -- and MER -- 10% of last year's quarter?
These numbers seem very extreme or do some of the write offs find there way into the sales numbers?
Within our bank cards portfolio, approximately two-thirds of the losses occurred in five states ... And the loss rates on customers with mortgages in those states increased by fourfold versus the loss rates in the rest of the country
That's the first clear, and by far the most profound statement of what I feel is the biggest component of the coming crisis: huge numbers of people were relying on home price appreciation to service their overall debt load (paying off CCs through c/o refinancing, HELOCs, etc.). Prices didn't even need to fall to break that system, they just had to level off. Forget a jingle mail epidemic, there's a BK epidemic of unprecedented proportion headed our way.
i bet even an intermeeting rate cut wouldnt be able to prop up this market now... nah maybe a 20 min. rally... what can i say common sense is finally returning (after a 5-year vacation)
Did you catch any of the interviews done last nightwith Michigan's governor, who is a Democrat? She said: There is just one big issue today in Michigan -- the outsourcing of manufacturing jobs overseas. It's got to stop right now, she said. And she meant it.
Rich - relax old boy. I come from a solidly democratic family at least on one side (Irish Catholics & French Canadians on that side - not just lefties but hard drinking, angry lefties)... but even they realize there is nothing Dems can do to slow stop or even address the jobs loss issue.
Fortunately for them they have an ally - weakening dollar. Even Michigan will eventually benefit & see mfg job growth... just about the time the GOP is swept out of the WH (dems prolly swept out of Congress too, for the same reasons!!!)....
So a Dems pres might get an opportunity to crow and 'claim credit for the dawn'...
Of course that will be about the bottom of the financial markets so - s/he will get the blame for that too.
C in the past had a net equity value of $100B, including "goodwill".
Now, they've taken a few hits and their book value is now what? $60B? including GW, of course.
I've been told here that saying C is BK was inappropriate. They were possibly insolvent but not BK. Hooey!
They are the walking dead. They're not flat out on the slab because too many have too much to lose in this inverted pyramid called a dancing bank.
Look here, to cut to the chase and get on with carving up the cadaver..., from their own lips, "In second mortgages, we are experiencing higher losses from loans with origination loan to value that are greater or equal to 90%, which comprise 34% or $20 billion of the second mortgage portfolio."
$20B = 34% of the 2nd Mtg's
Ergo, $60B = 100% of 2nd Mtgs.
As of now nearly all of 1/3 of 2nd Mtgs are non performing, as in worth zero. That's $20B in the toilet.
And as of 1 yr from now, nearly 100% of their 2nd Mtgs will be non performing, as in RE prices so low that the 2nds are worth zero.
With a BV of $60B and a 2nd Mtg write off of $60B, are we again back at insolvent?
Well, then kick it over with the CRE losses in those firsts, the SIV's, CDO's, and more pile ons.
The company is BK. We're all kidding ourselves to think otherwise.
I'll take my dinner prize at Urasawa on Rodeo Dr, near where you live. Thx.
So how has our foreign policy position been constrained by our coming and rattling the cup to the Saudi Royal family. They're getting something for their money.
In a wider perspective this is all part of the decline and fall of US power in the world. We are slipping everywhere and making war isn't going to prevent it, but accelerate it. China will push us out of Asia, Russia will keep us out of Eastern Europe, Iran will eventually push us out of the Gulf (and leave our 51st state of Israel stranded), and we no longer control things in Latin America or much of anywhere else. We will still have some clout in Mexico and perhaps Canada. That's about it.
When the demands for benefits by the baby boomers kicks in in the next five years, that will finish our economic power for good. It'll be guns v. butter and I think butter or margarine, more likely, will win.
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, youve got to get up and dance. Were still dancing".
I come from a solidly democratic family at least on one side (Irish Catholics & French Canadians on that side - not just lefties but hard drinking, angry lefties).
All, Citi is basing their CDO loss forecasts on house price decline of about 7% each for each of the next two years.
Best to all.
CalculatedRisk
Holy cow, what page did you find that on? That is definitely BIG news, they could be drastically understating a big housing downturn. I've personally seen 30%+ drops here in southern california.
The sales numbers are net sales and for C they are net of other revenue which had a a quarter on quarter change of -19 Billion so the bulk of the write offs are reflected in the sales number.
"$20B = 34% of the 2nd Mtg's
Ergo, $60B = 100% of 2nd Mtgs.
As of now nearly all of 1/3 of 2nd Mtgs are non performing, as in worth zero. That's $20B in the toilet."
That's some mighty fine arithmetic but unfortunately its wrong. If you take a quick gander at the little graph which goes with the article you will see that the current >90 day past due on 2nd's is (drum roll) 1.38%. So if we multiply 60 billion * .0138 we get ballpark $800 million.
It's ok to be bearish and think the whole world is going to disappear but for the sake of other readers try and get the math right.
The IT situation in India has gotten so expensive that the largest consulting firms are offshoring back to the United States (onshoring?) in places like Idaho.
Vito | 01.15.08 - 11:01 am | #
Similar situation in mfg... the cost of 'on-shoring' is quickly approaching 'off-shoring'... as it should (and was predicted to happen by the 'Ricardo' gang).
There is still a big incentive to go off-shore... to be in country and able to operate better there. With or without de-coupling the biggest growth is going to be in the 'developing world'... only question is how much & where.
But putting call centers & mfg offshore to support NAFTA Zone JUST to take advantage of short term labor differences & currency imbalances... is crazy. Future generations will look back at that and wonder what the hell our 'corporate leaders & captains of industry' were thinking.
dryfly, a falling dollar is one part of the "rebalancing" (as Stephen Roach calls it). There has to be a real realignment of resources in this country, away from the coasts into the heartland, away from paper-shuffling, securities trading professions to real engineering, real manufacturing. Wall Street quants have to go design bridges for a change (insert Minnesota bridge quote).
Until and unless the real realignment happens - several years of absolute misery in Wall Street would be a place to start - the dollar could sink all the way, without materially changing our position. We cannot devalue enough to compete with Chinese or Indian rural labor, so that by itself is insufficient.
All a devaluation would achieve is to have foreigners own more and more of the assets here, which will become politically unacceptable at some point (perhaps real soon). That would lead to retaliation from those stiffed foreigners (what else are they supposed to do with their sinking US paper?).
Well in the not too distant future Boeing AND Airbus will have to compete with the Chinese who are ramping up their civilian aircraft industry. They specifically intend to compete in the big airliner category.
All a devaluation would achieve is to have foreigners own more and more of the assets here, which will become politically unacceptable at some point (perhaps real soon). - Ivy
So? We've been giving them paper for their goods & hard labor and they want more than paper. So we have to give them more - guess what, the only thing we have that they want are assets?
That will help reduce current account deficit & prop the dollar...
Like I said - this was done YEARS ago with long running deficits. We're just now beginning to 'reconcile accounts'. Sucks huh.
We need a vast cultural, mindset change. - Ivy
The dollar signal is the start. That is how paper pushing gets converted to tool making - over time.
My daughter went to an expensive eastern engineering school - many of the best and brightest are heading to Wall Street (IBs) & Greenwich (hedgies) because the money is obscene compared to mfg & eng. My daughter is heading into health care... the signal isn't there yet.
Change the dollar and see losses in 'paper pushing' & services and a real shift in competitiveness toward mfg and those resources & mindset shift too.
But the dollar is the signal telling us we're 'imbalanced' wrt the rest of world. The fed is just acknowledging & reacting to these shifts & signals...
ivy:
There is no doubt that there are a fair number of quants to be found around the financial markets, but I am not at all sure that the world would be better suited to have them designing bridges.
I guess the first point is that there are not really that many of them, though as a percentage of folks with math and related analytical skills I suppose it is a decent chunk.
The world will pay more for people adept at price prediction/capital allocation than just about any other occupation on the planet. Hence it is reasonable to think that those who might be able to do it will gravitate in that direction.
As far as the benefit to the world, since capital is allocated in vast chunks, its efficient allocation is worth a tremendous amount, so it is probably a very good idea that folks with the best analytical skills be the ones doing the allocating.
As I have written here before, money management is one of the great meritocracies to be found. If you can consistently make price predictions by whatever method you choose and have the desire to manage money, you can have a very large business.
"dryfly, a falling dollar is one part of the "rebalancing" (as Stephen Roach calls it). There has to be a real realignment of resources in this country, away from the coasts into the heartland, away from paper-shuffling, securities trading professions to real engineering, real manufacturing. Wall Street quants have to go design bridges for a change (insert Minnesota bridge quote)."
There's another benefit to the rebalancing, and the normalization of asset prices -- particularly real estate:
Out here on my section of the West Coast, manufacturing has been gutted in recent years by the high cost of housing. If I stand up in my cubie right now, I can see out the window to an abandoned Wrigley's plant; there's an abandoned Lipton's plant a couple of blocks away. And a former TI chip plant almost next door to us, also basically empty except for the office space -- hundreds of thousands of square feet of unused industrial space within a five minute walk.
This happened in the last ten years as housing prices were bid up beyond the ability of workers to buy reasonable housing. Most of these job did not go overseas; they moved to the Midwest, to South Carolina, New Mexico, and elsewhere.
A fall in housing prices to non-bubble levels may well encourage more industrial employment in areas that have been stripped of it by real estate speculation -- like mine. I'm looking forward to it.
Talking heads on CNBC were just on (~11 AM CST) bitching about the Citi confessional saying it WASN'T a kitchen sink toss at all - that there are more losses they haven't admitted to and THAT was why the market didn't bounce on the better than $24B news.
david_in_ct: Hold it a little. Even in money mgmt, as in all "meritocracies", it is not unsubstantially about how much credit you can claim to your name and how much blame discharge to others (and preferrably while "leveraging" the work of others). And often it's a matter of timing too.
More people have become successful beating their drum than slogging away on the grunt work that enables it all.
"But putting call centers & mfg offshore to support NAFTA Zone JUST to take advantage of short term labor differences & currency imbalances... is crazy. Future generations will look back at that and wonder what the hell our 'corporate leaders & captains of industry' were thinking.
dryfly | 01.15.08 - 12:00 pm |
They were thinking about "making the number" - either quarterly or annual earnings - who cares about next year...
I don't think the wages are that high, but the total cost of employing offshore approach the levels you mention. A lot of folks offshored figuring to replace expensive and stupid employees with Indians. However offshoring does cure stupid management.
But yea, a lot of the jobs are comming back for a number of reasons.
You are correct, and there is the herd instinct, the magazine on the airliner has a bunch of folks telling how smart they were in offshoring and the golf buddies were offshoring also.
And the accounting could be flexible enough to support whatever the big man wanted.
"They were thinking about "making the number" - either quarterly or annual earnings - who cares about next year..."
And that's the key. The American economy is now all about producing numbers -- because that's what Wall Street rewards. At least, it rewards them long enough for the executive cadre to get their bonuses and cash out.
Well said regarding rebalancing. If people can't afford NYC and California, let prices fall.
Also, why should policies prop up the real estate on the coasts? If the coasts are too expensive, businesses will migrate to the midwest and south. This is healthy. Trust me, places like Detroit and Cleveland need help more than the coasts.
The gov't and FED are now beholden to the banks and their foolish real estate loans on coastal properties.
"More people have become successful beating their drum than slogging away on the grunt work that enables it all.
cm | 01.15.08 - 12:33 pm |'
But thats just it. In the money management game, because the results are so easily measured, it is the people that produce who are rewarded the most. It one of the few fields of endeavor where the rubber really meets the road.
There is not really that much 'grunt work'. It is more that there is an overwhelming amount of information and the ability to sift thru it and make sense of it is the key. Often it is the collective insight of very few people which drives the business.
I blame Rob Dawg, he told the underwater owners to stop paying the seconds, and as always, he made a very persuasive argument. - sdtfs
Yep, respected titan of industry that I am all ears turn whenever I so much a burp. Not.
The holders of those notes are marking them down to zero, why not the borrowers? The 20 side of an 80/20 never made sense to me. A leveraged naked put on margin with a limited upside and infinite downside.
But thats just it. In the money management game, because the results are so easily measured, it is the people that produce who are rewarded the most. It one of the few fields of endeavor where the rubber really meets the road.
While this is true, it doesn't address the underlying problem: that the vast majority of the growth (and therefore money) in the financial sector these past few years has been driven by areas that don't "produce" anything.
Effective capital allocation is a rare and extremely valuable skill, not just because it makes money for its practitioners (or their clients) but because of its value "multiplier effect" downstream. People who are in the top 0.1% of their field at this ability should be compensated accordingly. (Or else they will find ways to compensate themselves for it, a la Warren Buffett.)
But derivatives are fundamentally zero-sum. My loss is your gain (before fees, of course). You're not creating wealth in any general sense by bundling, slicing, dicing, pricing, and selling on RMBS and CDO's. All you're doing is reallocating risk.
Is that a valuable skill? To a certain extent. But many of the great quantitative minds of our generation - who could have produced (in the true sense of the word) huge net gains to American society had they turned their talents to engineering, entrepreneurship, or even just to more humble areas within finance - have spent the prime years of their professional lives inventing and marketing creative ways to rob Peter to pay Paul. The opportunity costs of it all are almost too depressing to consider.
Of course when the financial industry really allocates capital more efficiently than otherwise would happen that would be worth a lot, but we have just seen an era with massive misallocation of capital to everyone's great cost. Further, asset bubbles make everyone look like a genius for a while, but it it becomes very difficult to truly measure value.
All, Citi is basing their CDO loss forecasts on house price decline of about 7% each for each of the next two years.
Best to all.
CalculatedRisk
That is at least a sign that they are starting to realize the magnitude of the problem, and might not be to far off, of course that means that 2010 is also down another 7% or so. All told we need about a 25% decline in real terms nation wide, top to bottom, with a bit of inflation, sounds like they are in the right ballpark. Remember all, RE pricing moves in slow motion.
If you are bankrupt then you are not delinquent???
i think Brian is officially in the hat tip hall of fame!
FOB: if you are BK you are no longer delinquent!
At least this distracts the peasantry (us) from Countrywide...
Billy--Countrywide who?
Moin,
time for a repost for one of the best quotes related to Citigroup from the former CEO Prince....
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, youve got to get up and dance. Were still dancing".
On a previous thread regarding Citigrope, someone asked whether the job losses would occur in Indian call centers or the U. S. Well, let's not be cynical. If there are Indian call center workers for Citi, they are probably working for an outside contractor, maybe Citi cuts back on the offside contractor. Who knows?
If they are Citi young bankers rather than call center employees in India, India is a growth market for the middle class services. Then no cut backs.
In the U.S., the banking center is pretty much consolidated. If service sucks, your choices are other banks where the service will suck. Every person cut from the headcut in the U. S. saves $50 to $150 K per annum.
Where do think the savings compared to growth are gonna be at?
Cringely the tech commentator had a column regarding IBM and middle class American lay offs. Better read.
May 4, 2007Pulpit
Lean and Mean: 150,000 U.S. layoffs for IBM?
I, Cringely . The Pulpit . Lean and Mean | PBS
All, Citi is basing their CDO loss forecasts on house price decline of about 7% each for each of the next two years.
Best to all.
I'm starting to see home value losses approaching 35% in my area of southern california, riverside county.
If I was the CEO of a big U.S. company, I'd outsource as many jobs to India as I possible could before the Dems get in and put a stop to it.
In fact, I would also outsource myself to a nice place somewhere in India, to get far, far away from all this crap here.
Did you catch any of the interviews done last nightwith Michigan's governor, who is a Democrat? She said: There is just one big issue today in Michigan -- the outsourcing of manufacturing jobs overseas. It's got to stop right now, she said. And she meant it.
i think Brian is officially in the hat tip hall of fame!
bacon dreamz | 01.15.08 - 10:01 am | #
Do you think we will get a head-shot?
In fact, I would also outsource myself to a nice place somewhere in India, to get far, far away from all this crap here.
Why do you think Halaburton left the saw this crap comming.
Moin CR,
thanks for the info.
Good luck with still $ 3.6 billion in mezzanine subprime CDO´s on their books i assume they will have to write down more sooner than later.....
credit rating cut to AA-
Saudi prince Alaweed bin Talal is nephew of Late King Fahd. We should look at his money as strategically placed. So now look over to the Persian Gulf where the US is trying to develop a security structure that contains Iran. But the Saudis have to live there and they want good relations with the big Shia power.
So how has our foreign policy position been constrained by our coming and rattling the cup to the Saudi Royal family. They're getting something for their money.
Go East, young man, and hitch your wagon to an Arabian star.
Bush requests OPEC nations up output to reduce oil prices, Saudis say 'sorry' the market dictates oil production.
So much for Bush family 'House of Saud' connection.
I'm so old I can remember when $18B was a lot of money.
The bigger question to ask: How are the ratios?
Canadian Banks feel the pain, too.
Canadian Imperial Bank of Commerce, already reeling from its exposure to America's subprime meltdown, confirmed yesterday it will record another $2.46 billion (U.S.) in pre-tax writedowns after disclosing plans to raise $2.75 billion (Canadian) by selling stock, most of it to blue-chip investors
CIBC in $2.75 billion stock sale - thestar.com
Actually India isn't the cheap dumping ground it used to be.
Six months ago I read that Indian programmers were getting paid 70% of those working in the Silicon Valley and that call center jobs which were considered prized 5 years ago are now looked on as lowclass.
The IT situation in India has gotten so expensive that the largest consulting firms are offshoring back to the United States (onshoring?) in places like Idaho.
Financial earnings and projections are very, very opaque. Any investment in financials here is just a leap of faith imo.
Worse still, we've yet to here of any shocks to the system from derivatives. Just a hunch, but I think we will.
Protect your nut, wall street and the fed won't.
Financial earnings are very opaque because they have to be. If they disclosed the truth, well,........ they can't handle the truth.
They sure have some pretty charts for looking backward with.
If christofay's article is correct, 7% price declines yoy is probably too small. Models work until they don't.
Cheers,
By contrast, delinquency rates in our second mortgage portfolio are at historically high levels, particularly in the 90% LTV segment -- 90% and higher LTV segment as shown in the yellow box.
I blame Rob Dawg, he told the underwater owners to stop paying the seconds, and as always, he made a very persuasive argument.
Lets not forget some others:
1/15/2008 7:52:50 AM Tuesday, Merrill Lynch (MER) said it would augment its capital base by issuing $6.6 billion of mandatory convertible preferred stock in private placements to long-term investors, including Korean Investment Corp., Kuwait Investment Authority, and Mizuho Corporate Bank
1/15/2008 10:01:49 AM Tuesday, US Bancorp (USB) reported lower fourth-quarter profit, hurt by an industry wide settlement to Visa Inc. for certain litigation matters and losses from money market funds.
The Minneapolis, Minnesota-based bank delivered net income applicable to common equity at $927 million or $0.53 per share, down from $1.18 billion or $0.66 per share in the same quarter last year. Net income for the quarter stood at $942 million, in comparison with $1.19 billion a year-ago.
i think Brian is officially in the hat tip hall of fame!
bacon dreamz | 01.15.08 - 10:01 am | #
Do you think we will get a head-shot?
Napolean | 01.15.08 - 10:33 am | #
BTW- I think the fuss about Meredith Whitney was because we're not used to seeing a pretty face on the blog, and so it was a little shocking. Maybe if CR posted one everyday we could become inured to it. Just a thought.
This is indeed a parade with a theme:
Sovereign To Take $1.58 Bln Charge In Q4; Raises Loan Loss Provision - Update [SOV]
1/14/2008 9:23:42 AM Monday, Sovereign Bancorp, Inc. (SOV) said it expects to record about $1.58 billion in charges in the fourth quarter due to the continued deterioration of the housing market and rising defaults among home loans.
The Philadelphia, Pennsylvania-based bank noted that the continued volatility in the financial markets and deterioration in the credit environment are expected to adversely impact its fourth quarter 2007 financial results
What's with the market? How could this not have been priced in?
No pretty faces, too distracting and hopeful. Same goes for Ivy, don't post pics.
If I wanted financial cheesecake, you could post pics of Warren and Charlie.
That is what makes me happy.
More moola. After all I have a retirement to fund that I want to be comfortable and secure, unlike the typical boomer.
Ever wonder why that old dude Dennis Hopper is cranking out those Amex commercials for financial services? Could it be he partied too much and doesn't have enough moola?
nah. Thanks for the cheap funds Citi.
Someday this war's gonna end...
how many are they laying off?
Barley,
It's not a parade, it's a funeral march.
Cheers,
Someday this war's gonna end...
... in the meantime, there's MasterCard
This certainly doesn't strike me as a new broom sweeping clean, sadly. Unfortunately, the whisper numbers would have been much more aggressive and positive for C's long-term outlook. Couple that with these issues in consumer credit and I see them hemorrhaging money for some time to come, particularly without important trims where employees literally no longer have markets to work in.
I'm starting to smell some hedge fund panic in the market, combined with other hedge funds aggressively going short. It's getting to the dog-eat-dog point with hedge funds.
Emerging markets may start rolling over soon. EEV up big today as yen hits long-time high and hedge funds bail on carry.
An excellent article w/ f/u oa a piece done by Pimco's Gross. Worth the time:
Pyramids Crumbling
Am I wrong or does this mean that 29 percent of their mortgage portfolio are seconds (dollar amount)?
I wonder what this means for Freddie Mac and Fannie Mae's 4Q reports?
What will the combined 4th Q look like? Here is the FDIC's take on Q3:
FDIC-insured commercial banks and savings institutions reported net income of $28.7 billion for third quarter 2007, the lowest quarterly total since fourth quarter 2002. Quarterly loan loss provisions soared to a 20-year high, and market-related noninterest revenues declined. The average return-on-assets fell to 0.92 percent, the lowest quarterly average since fourth quarter 1992
IMO, the extent of loss citi will report will depend on the resulting reserve ratio.
rich,
It did a mini cliff dive at 8am, what number has you worried.
Cheers,
The C and MER writeoffs get the ink but does anyone have any insight into the sales of C -- 25% of last year's quarter -- and MER -- 10% of last year's quarter?
These numbers seem very extreme or do some of the write offs find there way into the sales numbers?
Any accountants around?
Can you say containment?
Within our bank cards portfolio, approximately two-thirds of the losses occurred in five states ... And the loss rates on customers with mortgages in those states increased by fourfold versus the loss rates in the rest of the country
That's the first clear, and by far the most profound statement of what I feel is the biggest component of the coming crisis: huge numbers of people were relying on home price appreciation to service their overall debt load (paying off CCs through c/o refinancing, HELOCs, etc.). Prices didn't even need to fall to break that system, they just had to level off. Forget a jingle mail epidemic, there's a BK epidemic of unprecedented proportion headed our way.
i bet even an intermeeting rate cut wouldnt be able to prop up this market now... nah maybe a 20 min. rally... what can i say common sense is finally returning (after a 5-year vacation)
Did you catch any of the interviews done last nightwith Michigan's governor, who is a Democrat? She said: There is just one big issue today in Michigan -- the outsourcing of manufacturing jobs overseas. It's got to stop right now, she said. And she meant it.
Rich - relax old boy. I come from a solidly democratic family at least on one side (Irish Catholics & French Canadians on that side - not just lefties but hard drinking, angry lefties)... but even they realize there is nothing Dems can do to slow stop or even address the jobs loss issue.
Fortunately for them they have an ally - weakening dollar. Even Michigan will eventually benefit & see mfg job growth... just about the time the GOP is swept out of the WH (dems prolly swept out of Congress too, for the same reasons!!!)....
So a Dems pres might get an opportunity to crow and 'claim credit for the dawn'...
Of course that will be about the bottom of the financial markets so - s/he will get the blame for that too.
Meanwhile this rock still circles the sun.
C in the past had a net equity value of $100B, including "goodwill".
Now, they've taken a few hits and their book value is now what? $60B? including GW, of course.
I've been told here that saying C is BK was inappropriate. They were possibly insolvent but not BK. Hooey!
They are the walking dead. They're not flat out on the slab because too many have too much to lose in this inverted pyramid called a dancing bank.
Look here, to cut to the chase and get on with carving up the cadaver..., from their own lips, "In second mortgages, we are experiencing higher losses from loans with origination loan to value that are greater or equal to 90%, which comprise 34% or $20 billion of the second mortgage portfolio."
$20B = 34% of the 2nd Mtg's
Ergo, $60B = 100% of 2nd Mtgs.
As of now nearly all of 1/3 of 2nd Mtgs are non performing, as in worth zero. That's $20B in the toilet.
And as of 1 yr from now, nearly 100% of their 2nd Mtgs will be non performing, as in RE prices so low that the 2nds are worth zero.
With a BV of $60B and a 2nd Mtg write off of $60B, are we again back at insolvent?
Well, then kick it over with the CRE losses in those firsts, the SIV's, CDO's, and more pile ons.
The company is BK. We're all kidding ourselves to think otherwise.
I'll take my dinner prize at Urasawa on Rodeo Dr, near where you live. Thx.
So how has our foreign policy position been constrained by our coming and rattling the cup to the Saudi Royal family. They're getting something for their money.
In a wider perspective this is all part of the decline and fall of US power in the world. We are slipping everywhere and making war isn't going to prevent it, but accelerate it. China will push us out of Asia, Russia will keep us out of Eastern Europe, Iran will eventually push us out of the Gulf (and leave our 51st state of Israel stranded), and we no longer control things in Latin America or much of anywhere else. We will still have some clout in Mexico and perhaps Canada. That's about it.
When the demands for benefits by the baby boomers kicks in in the next five years, that will finish our economic power for good. It'll be guns v. butter and I think butter or margarine, more likely, will win.
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, youve got to get up and dance. Were still dancing".
They were dancing in the red shoes of greed....
I come from a solidly democratic family at least on one side (Irish Catholics & French Canadians on that side - not just lefties but hard drinking, angry lefties).
Uncle Dryfly, is that you?
All, Citi is basing their CDO loss forecasts on house price decline of about 7% each for each of the next two years.
Best to all.
CalculatedRisk
Holy cow, what page did you find that on? That is definitely BIG news, they could be drastically understating a big housing downturn. I've personally seen 30%+ drops here in southern california.
Answer to my own question about sales:
The sales numbers are net sales and for C they are net of other revenue which had a a quarter on quarter change of -19 Billion so the bulk of the write offs are reflected in the sales number.
Back to your regular programming.
"$20B = 34% of the 2nd Mtg's
Ergo, $60B = 100% of 2nd Mtgs.
As of now nearly all of 1/3 of 2nd Mtgs are non performing, as in worth zero. That's $20B in the toilet."
That's some mighty fine arithmetic but unfortunately its wrong. If you take a quick gander at the little graph which goes with the article you will see that the current >90 day past due on 2nd's is (drum roll) 1.38%. So if we multiply 60 billion * .0138 we get ballpark $800 million.
It's ok to be bearish and think the whole world is going to disappear but for the sake of other readers try and get the math right.
The IT situation in India has gotten so expensive that the largest consulting firms are offshoring back to the United States (onshoring?) in places like Idaho.
Vito | 01.15.08 - 11:01 am | #
Similar situation in mfg... the cost of 'on-shoring' is quickly approaching 'off-shoring'... as it should (and was predicted to happen by the 'Ricardo' gang).
There is still a big incentive to go off-shore... to be in country and able to operate better there. With or without de-coupling the biggest growth is going to be in the 'developing world'... only question is how much & where.
But putting call centers & mfg offshore to support NAFTA Zone JUST to take advantage of short term labor differences & currency imbalances... is crazy. Future generations will look back at that and wonder what the hell our 'corporate leaders & captains of industry' were thinking.
dryfly, a falling dollar is one part of the "rebalancing" (as Stephen Roach calls it). There has to be a real realignment of resources in this country, away from the coasts into the heartland, away from paper-shuffling, securities trading professions to real engineering, real manufacturing. Wall Street quants have to go design bridges for a change (insert Minnesota bridge quote).
Until and unless the real realignment happens - several years of absolute misery in Wall Street would be a place to start - the dollar could sink all the way, without materially changing our position. We cannot devalue enough to compete with Chinese or Indian rural labor, so that by itself is insufficient.
All a devaluation would achieve is to have foreigners own more and more of the assets here, which will become politically unacceptable at some point (perhaps real soon). That would lead to retaliation from those stiffed foreigners (what else are they supposed to do with their sinking US paper?).
We need a vast cultural, mindset change.
Uncle Dryfly, is that you?
12th Percentile | 01.15.08 - 11:56 am | #
LOL! Everyone has an 'Uncle Dryfly'... some just hide them from the public (and a good thing they do).
Business & Technology | Airbus takes Boeing fight to U.S. soil | Seattle Times Newspaper
.
Well in the not too distant future Boeing AND Airbus will have to compete with the Chinese who are ramping up their civilian aircraft industry. They specifically intend to compete in the big airliner category.
China to Develop Large Passenger Jets
All a devaluation would achieve is to have foreigners own more and more of the assets here, which will become politically unacceptable at some point (perhaps real soon). - Ivy
So? We've been giving them paper for their goods & hard labor and they want more than paper. So we have to give them more - guess what, the only thing we have that they want are assets?
That will help reduce current account deficit & prop the dollar...
Like I said - this was done YEARS ago with long running deficits. We're just now beginning to 'reconcile accounts'. Sucks huh.
We need a vast cultural, mindset change. - Ivy
The dollar signal is the start. That is how paper pushing gets converted to tool making - over time.
My daughter went to an expensive eastern engineering school - many of the best and brightest are heading to Wall Street (IBs) & Greenwich (hedgies) because the money is obscene compared to mfg & eng. My daughter is heading into health care... the signal isn't there yet.
Change the dollar and see losses in 'paper pushing' & services and a real shift in competitiveness toward mfg and those resources & mindset shift too.
But the dollar is the signal telling us we're 'imbalanced' wrt the rest of world. The fed is just acknowledging & reacting to these shifts & signals...
ivy:
There is no doubt that there are a fair number of quants to be found around the financial markets, but I am not at all sure that the world would be better suited to have them designing bridges.
I guess the first point is that there are not really that many of them, though as a percentage of folks with math and related analytical skills I suppose it is a decent chunk.
The world will pay more for people adept at price prediction/capital allocation than just about any other occupation on the planet. Hence it is reasonable to think that those who might be able to do it will gravitate in that direction.
As far as the benefit to the world, since capital is allocated in vast chunks, its efficient allocation is worth a tremendous amount, so it is probably a very good idea that folks with the best analytical skills be the ones doing the allocating.
As I have written here before, money management is one of the great meritocracies to be found. If you can consistently make price predictions by whatever method you choose and have the desire to manage money, you can have a very large business.
Future generations will look back at that and wonder what the hell our 'corporate leaders & captains of industry' were thinking.
The present generation is already wondering,...
"dryfly, a falling dollar is one part of the "rebalancing" (as Stephen Roach calls it). There has to be a real realignment of resources in this country, away from the coasts into the heartland, away from paper-shuffling, securities trading professions to real engineering, real manufacturing. Wall Street quants have to go design bridges for a change (insert Minnesota bridge quote)."
There's another benefit to the rebalancing, and the normalization of asset prices -- particularly real estate:
Out here on my section of the West Coast, manufacturing has been gutted in recent years by the high cost of housing. If I stand up in my cubie right now, I can see out the window to an abandoned Wrigley's plant; there's an abandoned Lipton's plant a couple of blocks away. And a former TI chip plant almost next door to us, also basically empty except for the office space -- hundreds of thousands of square feet of unused industrial space within a five minute walk.
This happened in the last ten years as housing prices were bid up beyond the ability of workers to buy reasonable housing. Most of these job did not go overseas; they moved to the Midwest, to South Carolina, New Mexico, and elsewhere.
A fall in housing prices to non-bubble levels may well encourage more industrial employment in areas that have been stripped of it by real estate speculation -- like mine. I'm looking forward to it.
ON TOPIC ALERT!!!
Talking heads on CNBC were just on (~11 AM CST) bitching about the Citi confessional saying it WASN'T a kitchen sink toss at all - that there are more losses they haven't admitted to and THAT was why the market didn't bounce on the better than $24B news.
Whatever.
david_in_ct: Hold it a little. Even in money mgmt, as in all "meritocracies", it is not unsubstantially about how much credit you can claim to your name and how much blame discharge to others (and preferrably while "leveraging" the work of others). And often it's a matter of timing too.
More people have become successful beating their drum than slogging away on the grunt work that enables it all.
"But putting call centers & mfg offshore to support NAFTA Zone JUST to take advantage of short term labor differences & currency imbalances... is crazy. Future generations will look back at that and wonder what the hell our 'corporate leaders & captains of industry' were thinking.
dryfly | 01.15.08 - 12:00 pm |
They were thinking about "making the number" - either quarterly or annual earnings - who cares about next year...
Vito
I don't think the wages are that high, but the total cost of employing offshore approach the levels you mention. A lot of folks offshored figuring to replace expensive and stupid employees with Indians. However offshoring does cure stupid management.
But yea, a lot of the jobs are comming back for a number of reasons.
Too late for men and a bunch of my co workers.
Mike in Long Island
You are correct, and there is the herd instinct, the magazine on the airliner has a bunch of folks telling how smart they were in offshoring and the golf buddies were offshoring also.
And the accounting could be flexible enough to support whatever the big man wanted.
"They were thinking about "making the number" - either quarterly or annual earnings - who cares about next year..."
And that's the key. The American economy is now all about producing numbers -- because that's what Wall Street rewards. At least, it rewards them long enough for the executive cadre to get their bonuses and cash out.
Bob Dobbs,
Well said regarding rebalancing. If people can't afford NYC and California, let prices fall.
Also, why should policies prop up the real estate on the coasts? If the coasts are too expensive, businesses will migrate to the midwest and south. This is healthy. Trust me, places like Detroit and Cleveland need help more than the coasts.
The gov't and FED are now beholden to the banks and their foolish real estate loans on coastal properties.
It'll be guns v. butter and I think butter or margarine, more likely, will win.
You say this like it's bad that butter would win.
Problem is, when interest rates and motgage rates fall again (not to mention lifted GSE caps), flippers will be back
Anon, you just don't yet grasp the depth of the problem.
"More people have become successful beating their drum than slogging away on the grunt work that enables it all.
cm | 01.15.08 - 12:33 pm |'
But thats just it. In the money management game, because the results are so easily measured, it is the people that produce who are rewarded the most. It one of the few fields of endeavor where the rubber really meets the road.
There is not really that much 'grunt work'. It is more that there is an overwhelming amount of information and the ability to sift thru it and make sense of it is the key. Often it is the collective insight of very few people which drives the business.
dryfly: Moody's threat to lower the US national credit rating says it all. The whole nation is slipping along with its credit rating.
I blame Rob Dawg, he told the underwater owners to stop paying the seconds, and as always, he made a very persuasive argument. - sdtfs
Yep, respected titan of industry that I am all ears turn whenever I so much a burp. Not.
The holders of those notes are marking them down to zero, why not the borrowers? The 20 side of an 80/20 never made sense to me. A leveraged naked put on margin with a limited upside and infinite downside.
for the record my post: Don't Pay Your 2nd
was not investment advice. 
But thats just it. In the money management game, because the results are so easily measured, it is the people that produce who are rewarded the most. It one of the few fields of endeavor where the rubber really meets the road.
While this is true, it doesn't address the underlying problem: that the vast majority of the growth (and therefore money) in the financial sector these past few years has been driven by areas that don't "produce" anything.
Effective capital allocation is a rare and extremely valuable skill, not just because it makes money for its practitioners (or their clients) but because of its value "multiplier effect" downstream. People who are in the top 0.1% of their field at this ability should be compensated accordingly. (Or else they will find ways to compensate themselves for it, a la Warren Buffett.)
But derivatives are fundamentally zero-sum. My loss is your gain (before fees, of course). You're not creating wealth in any general sense by bundling, slicing, dicing, pricing, and selling on RMBS and CDO's. All you're doing is reallocating risk.
Is that a valuable skill? To a certain extent. But many of the great quantitative minds of our generation - who could have produced (in the true sense of the word) huge net gains to American society had they turned their talents to engineering, entrepreneurship, or even just to more humble areas within finance - have spent the prime years of their professional lives inventing and marketing creative ways to rob Peter to pay Paul. The opportunity costs of it all are almost too depressing to consider.
Of course when the financial industry really allocates capital more efficiently than otherwise would happen that would be worth a lot, but we have just seen an era with massive misallocation of capital to everyone's great cost. Further, asset bubbles make everyone look like a genius for a while, but it it becomes very difficult to truly measure value.
All, Citi is basing their CDO loss forecasts on house price decline of about 7% each for each of the next two years.
Best to all.
CalculatedRisk
That is at least a sign that they are starting to realize the magnitude of the problem, and might not be to far off, of course that means that 2010 is also down another 7% or so. All told we need about a 25% decline in real terms nation wide, top to bottom, with a bit of inflation, sounds like they are in the right ballpark. Remember all, RE pricing moves in slow motion.