Rolf Englund IntCom internetional
A mere 5.4% decline in the value of Citigroup's assets would make Citigroup insolvent.
Citigroup, the nation's third-largest bank by assets, was on the verge of being closed by regulators the week of Nov. 24, 2008
The report quotes Sheila Bair, chairman of the Federal Deposit Insurance Corporation, as saying that regulators “were on the verge of having to close this institution [Citi] because it can’t meet its liquidity”
Citigroup’s crisis deepened as its shares continued to slump in spite of a planned investment
Ytterligare nedskrivningar på nästan 9 miljarder dollar väntas nu lamslå Citigroup.
Aktien har fallit med 67 procent sedan toppen i slutet av 2006 och är 36 procent ned från årsskiftet.
Citigroup may write down $7.1 billion of collateralized debt obligations and associated hedges, and $1.2 billion for other asset classes, Goldman said. It may need to post a $600 million loss to reflect the mark-to-market value of its own structured note liabilities, New York-based Goldman said.
Citigroup cutting 9,000 jobs - $12bn of write-downs for sub-prime mortgages and other risky assets.
Citigroup reported a steep quarterly loss and took around $13 billion in writedowns, at least half of which were related to subprime-related exposure.
Wachovia joins the list of chronic anemics along with Citigroup (C), Washington Mutual (WM), Merrill Lynch (MER) and Countrywide Financial (CFC).
Wachovia is expected to get $US6 billion to $US7 billion (up to $7.6 billion) from selling its shares to the investors for roughly $US23-24 apiece, according to people familiar with the matter.
Instead of going to shareholders exclusively, banks and Wall Street firms are looking for a third-party vote of confidence, a role that sovereign wealth funds and private equity groups have been eager to play.
How Goldman Killed A.I.G.
The conventional wisdom has it that the final report of the Financial Crisis Inquiry Commission was a low-budget flop, hopelessly riven by internal political disputes and dissension among the commission’s 10 members. As usual, the conventional wisdom is completely wrong.
Actually, the report — and the online archive of testimony, interviews and documents that are now available — is a treasure trove of invaluable information about the causes and consequences of the Great Recession.
For instance, on the exceptionally important but little understood role played by the increasingly lower prices Goldman Sachs placed on the complex mortgage securities on its balance sheet — which helped determine the fate of many of its shakier Wall Street brethren — the commission report, on page 237, is crystalline:
The first victims of Goldman’s decision in May 2007 to begin communicating its lower marks to the rest of the marketplace were the two Bear Stearns hedge funds that were heavily invested in complex and squirrelly mortgage securities.
Soon enough, the funds’ investors were blocked from withdrawing their money, and by July the funds filed for bankruptcy and were soon liquidated. Investors lost much of the $1.5 billion they had invested. The liquidation of the two hedge funds led to the collapse of Bear Stearns nine months later.
Did Goldman Sachs Kill AIG ?
I have to take issue with William Cohan’s Op-Ed, How Goldman Killed A.I.G.
First off, let me start out by saying that these are two bad actors; there are no “good guys” here. Second, let me remind the reader that AIG under-wrote $3 trillion worth of derivatives, a massive high-risk exposure — and collected $3 billion (10 bps) in fees on their exposure.
Tom Savage, President, the head of AIG’s Financial Products, it free money: “The models suggested that the risk was so remote that the fees were almost free money. Just put it on your books and enjoy the money.”
Anyone who believes that stabilising Lehman was financially or politically impossible should note that the US Treasury bailed out the insurance group AIG at far greater public expense 24 hours later, when AIG’s potential failure threatened the survival of J.P. Morgan and Goldman Sachs.
The U.S. government rescued giant insurer American International Group
Pennsylvania Rep. Paul Kanjorski told reporters after his subcommittee held a hearing on systemic risk.
AIG is to receive a new $150bn US government bail-out
U.S. will take 80% stake in nation's largest insurer to prevent global financial chaos.
Taxpayers will be protected, the Fed said, because the loan is backed by the assets of AIG and its subsidiaries.
Shares of American International Group fell sharply after reports that the insurer had turned to the Federal Reserve for $40 billion in bridge financing to ward off a liquidity crisis and ratings downgrades.
AIG shares have fallen about 80 percent since the start of the year.
AIG offered investors an 8.25% yield for $3.25 billion of 10-year notes, and
But even before Monday's raft of bad news, there were worrisome signs in the financial sector. Financial giants such as American Express (AXP, Fortune 500), Citi (C, Fortune 500) and AIG have lately paid big premiums to raise billions of new cash in the bond market.
Those yields are substantially above the rates the companies paid earlier this year, reflecting continued uncertainty about the firms' finances after tens of billions of dollars in writedowns.
While the Fed has cut the short-term Federal funds rate that it controls to 2% from 5.25% since September, rates on long-term mortgages have risen.
If Citigroup could have borrowed reserves from the Fed at 3-4%
Citigroup makes $49bn SIV rescue
Counting the funds Kuwait and Korea committed to Merrill and Singapore and Kuwait committed to Citi,
That tops the $30b the IMF lent out over a four quarter period in the Asian/Russian crisis of 1997-1998, and is roughly the same size as the $40b or so the IMF lend out to Argentina, Brazil, Turkey and Uruguay over a two year period in 2001-2002.
Citigroup is going to get a cash injection of $6.88bn from Singapore government investment agency GIC.
Citigroup suffers $9.8 billion loss
The financial giant also announced a writedown of $18.1 billion related to soured mortgage investments and major cost-cutting initiatives, including a 41 percent cut to its dividend and plans to reduce in its payroll. At the same time, it said it was receiving a $12.5 billion infusion from investors in Kuwait, Singapore and the state of New Jersey.
Citigroup has slashed the size of its struggling off-balance-sheet investment funds by more than $15bn in two months
Meredith Whitney shuts her hedge fund
Hailed as an oracle of the larger financial crisis that followed in 2008, she became ubiquitous on business television and
CIBC World Markets financial services analyst Meredith Whitney,
“They’re desperate,” said Ms Whitney. “This $7.5bn is just not enough money by a long shot.” She believes that the odds that the bank, the world’s largest by assets, will still cut its dividend are “100pc”, while adding that the company may be forced to sell more than $100bn of higher quality assets at a discount in order to raise cash.
Citi shares rise on $7.5bn capital injection
The high cost of the new funds highlights Citi’s determination to meet its commitments to strengthen its balance sheet and carry on investing while maintaining its dividend.
It is only halfway through November but I think we can already declare the winner of the 2007 Quote of the Year competition.
That brings us to the crux of Mr Prince’s remark: “As long as the music is playing, you’ve got to get up and dance.”
It is worth reflecting soberly on this point because Mr Prince was not a renegade. He was doing his best to express, a bit too plainly as it turned out, the strategy pursued by Citi and its Wall Street rivals.
The phenomenon was at work in 1998 when Wall Street trading desks lined up with the trades devised by Long-Term Capital Management, the hedge fund. After the Russian debt crisis, buy-orders dried up in all corners of markets at once and Long-Term Capital collapsed.
The industry’s tendency to succumb to the madness of crowds invalidates a lot of risk management models, which under-estimated the probability and size of losses in highly stressed markets, as they did in 1998.
Bankers, like gangs, just get carried away
Will ha dance anymore?
Bankers had cashed in before the music stopped
”När musiken tystnar – en rapport om den globala finanskrisen”.
A mere 5.4% decline in the value of Citigroup's assets would make Citigroup insolvent.
"These numbers indicate that this bank is both liquid and well-capitalized," Bove wrote.
Let's rework Bove's statement to see the other side of the story.
Citigroup's assets look great in a vacuum. However, those assets do not look so great in relation to liabilities.
Citigroup CEO Chuck Prince's next "dance step" is likely to be out the door.
Citigroup’s Chuck Prince was a dancer. Not by profession mind you, or even as an amateur Foxtrotter with the Stars on ABC.
Many of the biggest players in the debt market are reluctant to express their worries in public but privately admit to deep concern. The chief risk officer at a leading Wall Street firm says banks are being forced to lend on aggressive terms to "stay in the game", even though they know trouble is being stored up. "It's like a game of musical chairs.
What we saw this summer is something we've seen before and will undoubtedly see again. The sell-off was predictable and avoidable.
So what will happen "when the music stops", as Mr Roach puts it.