Citigroup collapse ?, sommige experts denken van wel.

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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.