Citigroup collapse ?, sommige experts denken van wel.

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Citigroup Under Siege Eyes Government Rescue

Shares of Citigroup fell another 20% today to $3.77 and touched a new low at $3.05. Billed as "too big to fail" Citigroup May Get Government Rescue.

Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said.

Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got U.S. support this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“There is no question that Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”

While Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake the confidence of creditors, clients and rating agencies. A similar scenario played out at Lehman, when Chief Executive Officer Richard Fuld declared the firm was “on the right track” five days before the firm went bankrupt.

“The market may be implying some sort of regulatory intervention,” Jason Goldberg, a former Lehman analyst who now works at Barclays Capital in New York, wrote in a note to clients today. “In situations where the government has stepped in, the equity holders have not fared well.”

Citigroup CEO Vikram Pandit told employees today that he doesn’t plan to break up the company, aiming to reassure workers as the stock resumed its skid.

Citigroup Claims Adequate Capital

Assuming one believes Citigroup has adequate capital, exactly why should the Fed care what its share price is? No one seems to care that Fannie Mae is trading at 30 cents. So, if Citigroup is well capitalized why can't it just keep lending and otherwise go on its merry way? And if it really does have adequate capital, it would be a screaming buy. Finally, If share price is a concern simply announce a reverse 10-1 split and the stock will be trading at $40 in a jiffy.

So I do not buy this "well capitalized" story and with talks of a rescue it seems no one else does either. Earlier today the board had an unscheduled meeting to discuss the bank's options. The market was unimpressed as Credit Risk Rose on Citigroup Breakup Speculation.

Balance Sheet Blues

"Investors right now aren't convinced that we're done seeing dead bodies on the Citigroup balance sheet," said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. in Milwaukee, which oversees about $1 billion and doesn't own Citigroup shares. "That's what the sell-off is, concern over more and more losses over the next couple of quarters."

Concern over its balance sheet is indeed one of the issues. Credibility of Citigroup management is another issue. I discussed both yesterday in Citigroup Blames Short Sellers For Collapse and previously in Citigroup's Town Hall Meeting.

Citigroup, Under Siege

The New York Times is reporting Citigroup, Under Siege, Holds Talks With U.S.

In a series of tense meetings and telephone calls, the executives and officials weighed several options, including whether to replace Citigroup’s chief executive, Vikram S. Pandit, or sell all or part of the company. Other options discussed included a public endorsement from the government or a new financial lifeline, people involved in the talks said.

My Comment: A public endorsement? If it comes from Paulson it just may panic everyone.

After a board meeting early Friday morning, Citigroup’s management and some board members held several calls with Henry M. Paulson Jr., the Treasury secretary, and with the president of the Federal Reserve Bank of New York, Timothy F. Geithner, who later emerged as President-elect Barack Obama’s choice to be Treasury secretary.

As Citigroup’s stock sank during the day, falling 68 cents to close at $3.87, the Federal Reserve was carefully monitoring how much money corporations and other customers were withdrawing from the bank, people involved in the discussions said.

As Citigroup’s fortunes diminished on Friday, Mr. Pandit, the company’s embattled chief executive, went on the offensive. He worked the phones and held a companywide call to shore up the confidence of anxious employees.
Later in the day, the company held a similar call with large corporate customers. On Sunday, Citigroup plans to run full-page advertisements in major newspapers that acknowledge “our financial markets have been tested in unprecedented ways,” but argue that the company has a broad range of businesses and enough management expertise to pull through. In a nod to the company’s slogan, the text concludes: “That’s why now, more than ever, you can feel confident that Citi never sleeps.”

My Comment: Now there's a waste of money. If you have to advertise you have no problems, the ad may as well say "We have serious problems" because that is what everyone who reads the ad will know.

One maneuver that Mr. Pandit has championed is for the Securities and Exchange Commission to reinstate the “uptick rule,” which prevents short-sellers from betting against companies whose stock price is falling. Mr. Pandit has been lobbying the S.E.C. for the past week, as have other Wall Street chiefs.

Mr. Pandit and others have suggested that Citigroup is a victim of short-sellers, which some have blamed for speeding the demise of other financial companies this year.

In September, Richard X. Bove, an analyst at Ladenburg Thalmann, predicted that short-sellers would turn their attention to larger and larger financial companies, including Citigroup, which he said at the time was strong enough to withstand the pressure. “They’re going to hit a company that is too well grounded, too well capitalized, and I think that will be Citigroup,” he said.

My Comment: Pandit and Bove are both fools if they think short selling has anything to do with Citigroup's woes. Short interest is a mere 2.7%.

“The reason you have to ‘save’ Citibank is you cannot allow this hysteria,” said Peter J. Solomon, chairman of the Peter J. Solomon Company, a small investment bank.

My Comment: Add Peter J. Solomon to the ever growing list of clowns who think that failing companies need to be bailed out.

“If there’s a flight from Citi’s stock, that’s unfortunate, but I don’t think that’s the government’s business,” said David M. Walker, the president of the Peter G. Peterson Foundation and a former United States comptroller general.

David Walker and Ron Paul are among the very few in government positions or recently out of government positions who have a clue as to the complete fiscal insanity that is wrecking our nation.

Timothy Geithner, president of the New York Federal Reserve and Obama's Choice For Treasury Secretary has been involved in the meetings with Citigroup. Unfortunately Geithner is just another Keynesian clown who thinks that problems can be solved by throwing money at them. I am very disappointed in Obama's choice.

With that in mind, let's see what the weekend brings in regards to Citigroup.

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Citi considers putting risky assets in "bad bank"-WSJ - reuters
Sun Nov 23, 2008 5:24pm EST

NEW YORK, Nov 23 (Reuters) - Citigroup Inc is looking at putting risky assets in a "bad bank" -- a step to reassure investors that the rest of its assets were safe, the Wall Street Journal reported on Sunday.

The "bad bank" might take on some of Citigroup's more than $1.23 trillion of off-balance sheet assets. Citigroup might bear the initial losses on the assets, and the government might cover losses beyond a particular threshold, the newspaper reported, citing people familiar with the matter.

U.S. financial markets are waiting for some sort of Citigroup announcement this weekend, and if nothing happens, the bank's stock is likely to plunge further on Monday, analysts said.

Citigroup's shares fell 60 percent last week to $3.77, spurring the bank's management to talk to the U.S. Treasury and the Federal Reserve about its options.

The bank is not in danger of near-term collapse, people close to Citigroup said on Friday. Depositors are sticking with the bank, as are trading counterparties. The capital ratio that regulators look at most carefully, namely the tier-one capital ratio, is well above minimum required levels.

But a rapid decline in share price can make customers skittish and cut into a bank's business, wrote analysts at independent research boutique CreditSights on Saturday.

"Unfortunately, we feel like we have seen this movie before," they added. Lehman Brothers Holdings Inc and Washington Mutual Inc both experienced major declines in their shares, followed by an exodus of customers. Lehman filed for bankruptcy, while regulators took over Washington Mutual and sold its assets to JPMorgan Chase & Co.

Citigroup's executives last week debated options as the company's share price sank, including merging with another bank or selling off businesses. Citigroup also spoke to the Federal Reserve and the U.S. Treasury last week about the government making a public statement of support and perhaps even putting additional funds into the bank.

"Shareholders are saying, 'do something now,'" said William Smith, chief executive of Smith Asset Management, which owns Citigroup shares.

The Financial Times reported on Sunday that the board was meeting to discuss the bank's future.

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WRAPUP 1-Citigroup gets $306 bln rescue from US government

NEW YORK, Nov 24 (Reuters) - The U.S. government agreed to a $306 billion rescue plan for Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), agreeing to shoulder some losses from toxic debt in the latest attempt to bolster a financial services industry in turmoil.

Citigroup's package may also prove a template for other banks that are expected to face growing losses as economies worldwide sink into recession.

Credit losses once concentrated in mortgages are already bleeding into new, large areas such as credit cards and commercial real estate.

The nation's second-largest bank by assets has the farthest international reach of any U.S. bank, with operations in more than 100 countries. Many analysts have said Citigroup might be too big to be allowed to fail, and that any collapse could cause financial havoc around the globe.

"The market wants some kind of certainty about their losses," said Blake Howells, director of equity research at Becker Capital Management in Portland, Oregon.

The plan announced late Sunday calls for Citigroup to obtain $27 billion of capital by issuing preferred shares. The shares carry an initial 8 percent dividend, higher than the 5 percent it charges dozens of other lenders under its $700 billion financial industry rescue package. Citigroup itself got $25 billion in the earlier package.

Citigroup agreed to absorb the first $29 billion of losses on the $306 billion portfolio, plus 10 percent of additional losses, for a maximum total exposure of $56.7 billion. The Treasury Department could end up absorbing $5 billion, the Federal Deposit Insurance Corp $10 billion, and the Federal Reserve the rest.

The bank will not have to make management changes, but agreed to tighter restrictions on executive pay, and to try to modify troubled mortgages in the $306 billion portfolio. It also cannot pay more than 1 cent per share in common stock dividends per quarter for three years without the Treasury Department's consent. The quarterly dividend is now 16 cents.

"The U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the Fed, the Treasury Department and the FDIC said in a joint statement.

Asian stock markets trimmed earlier losses in Monday trading following the announcement. Dow Jones Industrial Average futures DJc1 were up 72 points at 8,089, while Standard & Poor's 500 futures SPc1 were up 11.20 points at 802.90.

The plan was announced less than a week after Pandit announced plans to reduce Citigroup's workforce to 300,000 by early next year from 375,000 at the end of 2007. (Reporting by Dan Wilchins and Jonathan Stempel; Editing by Jean Yoon)

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Update: Paul Krugman:

A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.

Amazing how much damage the lame ducks can do in the time remaining.

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'PONZI SCHEME' AT CITI

By PAUL THARP

ROBERT RUBIN
Citigroup director.

A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking.

Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted - and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities.

The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi's stock collapsed, wiping out more than $122 billion of shareholder value.

However, Rubin and other top insiders were able to keep Citi shares afloat until they could cash out more than $150 million for themselves in "suspicious" stock sales "calculated to maximize the personal benefits from undisclosed inside information," the lawsuit said.

The latest troubles for Rubin, Prince and others emerged in a 500-page investigation by Citigroup investors represented by law firm Kirby McInerney.

The probe was used to amend and add new details to a blanket investor lawsuit filed against Citigroup a year ago. The amended suit called the actions of Citi leaders "a quasi-Ponzi scheme" to hide troubles - and keep Citi stock afloat while insiders unloaded about 3 million shares between Jan. 1, 2004 and Feb. 22, 2008 for huge profits.

In addition to Citigroup, Rubin and Prince, the complaint names Vice Chairman Lewis Kaden, ex-CFO Sallie Krawcheck and her successor CFO Gary Crittenden.

Rubin cleared $30.6 million on his stock sales, while Prince got $26.5 million, former COO Robert Druskin got nearly $32 million and former Global Wealth Management unit chief Todd Thomson got $25.7 million, the suit said.

Citi denied the allegations and said it "will defend against it vigorously."

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Citigroup Needs to Confess Its Writedowns Now

Dec. 4 (Bloomberg) -- Now that Citigroup Inc. has secured yet another taxpayer bailout, where are the writedowns?

You don't have to be that smart to figure out there's still a lot of rot on Citigroup's $2.1 trillion balance sheet. If there wasn't, the New York-based lender wouldn't have needed last week's government rescue, which included a new $20 billion investment by the Treasury Department, plus a guarantee covering about $306 billion of the bank's assets against most losses.

And yet, something's missing: a proper confession.

Let's say a company's board or management concludes mid- quarter that big charges to earnings are needed to write down impaired assets. Under the Securities and Exchange Commission's rules, that must be disclosed within four business days in an SEC filing. If the size can't be determined, disclosure is still required; the company just has to say it's unable to make a good-faith estimate of the amount.

It's been more than a week since Citigroup reached its Nov. 23 welfare deal with the government. Since then, it has made no such disclosure filing, though it did issue a press release on Nov. 19 divulging $1.1 billion of new investment losses.

That leaves a couple of possible explanations. Somehow, the people running Citigroup have imagined a way to avoid concluding that massive writedowns are needed, even after determining the bank might not survive without another bailout. Or -- and here's the odds-on favorite -- Citigroup's bosses operate as if the rules don't apply to them.

Losses in Sight

One reason we know Citigroup is anticipating huge losses is that the terms of its latest bailout agreement envision them. Citigroup is responsible for the first $29 billion of losses in the government-guaranteed portfolio, which includes loans and securities backed by residential and commercial real estate. The government will assume 90 percent of any other losses, with Citigroup taking the rest.

In return, Citigroup is handing the feds $7 billion of preferred stock. How sweet is that? Imagine an insurance company offering to charge you a $7,000 premium with a $29,000 deductible to insure your $306,000 house, knowing full well that the master bedroom is on fire.

That's more than a helping hand. It's a gift. The spillover benefit for the world at large is that a global financial meltdown is averted again, for now, and Saudi billionaire Prince Alwaleed bin Talal's 4 percent stake in Citigroup is saved.

Citigroup's deal might be less offensive if the bank and its protectors were being transparent about what they're up to.

Mystery Number

Start with the basics. The Nov. 23 term sheet released by Treasury said as much as $306 billion in assets will be guaranteed. What did that dollar figure mean? There's no way to tell. The term sheet, which also was approved by the Federal Reserve and the Federal Deposit Insurance Corp., said it will be based on a valuation agreed upon by the parties later.

We don't know if that valuation will be what the holdings were worth last week, at the end of last quarter, or on some other date. We also know little about what the assets are. In addition to the stuff backed by real estate, the term sheet said they include ``other such assets as the U.S. government has agreed to guarantee.'' That could be anything.

Whatever Citigroup's writedowns will be this quarter, there are many obvious candidates. For instance, as of Sept. 30, Citigroup had $63.1 billion of intangible assets, including $39.7 billion of so-called goodwill, which is worth nothing to a company on the verge of collapse. By comparison, Citigroup's stock-market value yesterday was $42.6 billion.

Citigroup also had deemed $7.9 billion of paper losses on mortgage-backed securities as ``temporary,'' as if the housing bubble is coming back soon. The designation, which is an old Freddie Mac and Fannie Mae trick, meant Citigroup didn't have to include the losses on its income statement or in its regulatory capital.

Damaged Goods

Under the SEC's rules, if a company ``concludes that a material charge for impairment to one or more of its assets'' is required by generally accepted accounting principles, then it must make the necessary disclosure, using a filing known as a Form 8-K.

The exception is if ``the conclusion is made in connection with the preparation, review or audit'' of the company's periodic financial statements. In that case, the company can wait until its next quarterly report to disclose the information.

Citigroup's fourth quarter doesn't end until Dec. 31. The company's finance whizzes don't need to start drafting their year-end balance sheet to know Citigroup has lots of damaged goods. If Citigroup Chief Executive Officer Vikram Pandit hasn't concluded this already, it's because he prefers not to. Same goes for director and senior counselor Robert Rubin, the former Treasury secretary.

When I asked a Citigroup spokeswoman, Shannon Bell, last week why the bank hadn't disclosed any significant impairment charges for this quarter, she replied: ``Citi follows all reporting requirements.'' When I asked again this week, she declined to elaborate. Her statement speaks volumes, nonetheless.

At the Bailoutpalooza, everybody knows the rules: There are no rules. This has to stop somewhere.

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Citigroup Goes To Sleep

It's the end of the line for Citigroup. The "group" will soon be gone as Pandit Dismantles Weill Empire to Salvage the Bank Within Citi.

Vikram Pandit is unraveling his empire to save his bank. Citigroup Inc.’s chief executive officer said yesterday he would cede control of the Smith Barney brokerage to Morgan Stanley. Pandit may also dump the CitiFinancial consumer-lending unit, tag Tokyo-based Nikko Asset Management Co. for eventual sale and rein in trading with the bank’s own capital, people familiar with the matter said.

Some current and former Citigroup executives place the blame for the firm’s troubles on Weill. He refused to spend enough on technology and failed to integrate the new companies he acquired, say people familiar with the matter.

“Each business has been operating with its own back office,” Pandit told investors and analysts gathered in New York on May 9. “We have 140,000 people in IT and operations. We have 16 database standards. We have 25,000 developers. This results not only in waste but doesn’t give us any opportunity to leverage our organization. That’s massively inefficient. We’re finally going to merge it all.”

What Pandit meant to say was "We’re finally going to dump it all. The Fed has forced my hand. The Citi that never sleeps, is about to."

Goodbye Citigroup, Hello Citibank.

On January 10 in Citigroup Pieces For Sale, Starting With Smith Barney I wrote

Kiss Citigroup goodbye, at least as you now know it.
Let's see if Citigroup's card unit is next on the block.
Let's also watch how many heads roll in a sale of Smith Barney to Morgan Stanley.

Citigroup IT jobs At Risk

It's safe to say that a substantial number of the 140,000 people in IT including 25,000 developers are about to do their final conversion. IT jobs are not easy to get, especially large mainframe banks jobs. I have some friends there, and I wish them well.

Capital Drought

The breakup of Citigroup shines a glaring spotlight on Bernanke's pretending this is all some sort of liquidity crisis. The reality is Citigroup Crisis Is Emblem of Capital Drought.

Time and again, big banks such as Citigroup Inc. argued that irrational and seized-up markets, not the woeful state of their balance sheets, were to blame for convulsing share prices.

For more than 18 months, the government went along with that thinking. Instead of demanding that banks recognize their losses, overhaul operations and quickly raise equity from private sources, regulators bet a flood of money would unclog credit markets.

When that didn’t work, the government doled out billions of dollars to more than 100 banks through the Troubled Assets Relief Program, or TARP, again with few demands that banks take harsh medicine. That hasn’t done the trick either.

The reason is pretty simple. This has never been a liquidity crisis. It’s a capital crisis. Namely, investors don’t think banks have enough of it, especially when it comes to tangible common equity.

Citigroup is a dramatic example. Its tangible common equity was 2.41 percent of tangible assets at the end of the third quarter. That was too low for investors’ liking and below peers such as JPMorgan Chase & Co. and Wells Fargo & Co.

Citigroup's Equity Is A Mirage

Yesterday in Bernanke Hints Banks, Economy In Much Worse Shape Than Previously Admitted I translated a statement made by Bernanke to "Banks are in much worse shape than we have admitted previously. More taxpayer money is needed to prop up these failing banks."

A sharp reader corrected me as follows "Banks like Citigroup are not failing banks, they are failed banks. If your only source of funds are the politicians handing out taxpayer money, you've already failed, you're bankrupt."

Indeed, Citigroup would easily be seen as bankrupt if its SIVs were brought back on the balance sheet and all of its assets marked to market. The same applies to dozens of other banks as well. The entire US banking system is insolvent. And if you read between the lines, that is exactly what Bernanke said yesterday.