Monday, July 14, 2008

Citigroup hides $1.1 trillion of assets

Yes it hid them.

Off balance sheet.

What are these worth? Or let's just make it manageable. How big are the losses on this crap?

If $100 billion that came on balance sheet produced $7 billion of losses, what in the heck is this stuff worth? It's a safe bet, that these assets are lower quality than the first $100 billion!

Here's the Bloomberg story:

"At an investor presentation in May, Citigroup Inc. Chief Executive Officer Vikram Pandit said shrinking the bank's $2.2 trillion balance sheet, the biggest in the U.S., was a cornerstone of his turnaround plan.

Nowhere mentioned in the accompanying 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books: trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds.

Now, as Citigroup prepares to announce second-quarter results July 18, those off-balance-sheet assets, used by U.S. banks to expand lending without tying up capital, are casting a shadow over earnings. Since last September, at least $100 billion of assets have flooded back onto Citigroup's balance sheet, accompanied by more than $7 billion of losses.

``If you start adding up all the potential exposures, it's a huge number,'' said Sam Golden, a former ombudsman for the U.S. Office of the Comptroller of the Currency who now heads the financial-industry practice for restructuring adviser Alvarez & Marsal in Houston. ``The banks will say that it was disclosed. Investors are saying, `Yeah, but it was cryptic. We really didn't know what you were telling us.'''

U.S. banks already are reeling from more than $165 billion of writedowns and credit losses, so shareholders are wary of unknown obligations that might force them to take responsibility for additional troubled assets. The risks have become so obvious that accounting officials are proposing new rules -- some of which Citigroup opposes -- that would force many assets back onto balance sheets.

On the Hook

Seven of the biggest U.S. banks, including Citigroup, are on the hook for at least $300 billion of credit and liquidity guarantees for off-balance-sheet loans and bonds, according to a June 30 report from consulting firm RiskMetrics Group Inc. in Rockville, Maryland. Such guarantees were remote when pledged as an inducement to bond buyers. Now, the first year-over-year decline in housing prices since the Great Depression and rising home-loan, commercial-mortgage and credit-card delinquencies have begun to trigger them.

``You will rapidly realize what a farce these off-balance- sheet things are,'' said Ladenburg Thalmann & Co. analyst Richard X. Bove. ``You could pick up a lot of loan losses with the stuff you're putting back on.''

It's impossible to predict what the losses might be from off-the-books assets or liabilities because disclosures are thin relative to what is required for balance-sheet assets, said Neri Bukspan, chief accountant for Standard & Poor's in New York.

``A lot of information tends to disappear or becomes second or third class,'' Bukspan said."
http://www.bloomberg.com/apps/news?pid=20601109&sid=a1liVM3tG3aI&refer=home

Anyone wonder why banks don't trust each other? They don't trust their own balance sheet; why would they believe someone's else?

Tonight, in Tokyo, Mitsubushi UFJ and Mizuho Financial are down 4% because of concerns of the large amounts of Fannie and Freddie paper that they own.
http://www.bloomberg.com/apps/news?pid=20601087&sid=abxxmpKy6K88&refer=home

I can see where this is going.

If everyone over the FDIC limit starts shifting money into the treasury funds, the money market raids will be next.

It's just a matter of time before we have the first haircut there!

No comments: