Sunday, November 23, 2008

Fed to back Citigroup

Another bank with fictitious book value; and this time it is Citigroup. Last quarter, they had $42 billion of real estate assets that weren't collectively worth $20 billion, but they were conveniently booked in the Level 3 category.

Citigroup had at least another $40 billion of losses in their $186 billion of "available-for-sale" securities that they were "discovering" losses of $10 billion per quarter.

Citigroup's book value on September 31, 2008 supposedly was $98 billion. Now it's shareholder value is $21 billion. Wipe out $77 billion and you still need the Government to bail them out, because in the words of Meredith Whitney, "Citigroup is in such a mess, even Steven Hawking couldn't turn this company around."

Which is why the Government had to step in. Because who knows what else lies on their two trillion dollar balance sheet, after all their off-balance sheet assets get brought on.

And which is why Citigroup decided to "reach out" and make a big splash last week saying that they wanted to modify some homeowners mortgages before they were not yet current delinquent.

Because Citi, as of then, was not yet backstopped by the Federal Government.

But even the Government doesn't grasp the extent of Citigroup's problems. But then didn't AIG have to come back for a second dose? From the WSJ:

The talks Sunday centered on the creation of what is sometimes called a "bad bank" -- an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in potentially toxic assets, these people said.

Under the terms being discussed with top Treasury Department and Federal Reserve officials, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold, people familiar with the matter said. The U.S. government would then absorb any additional losses, these people said. One person said the new entity is expected to hold about $50 billion of assets.

But wasn't this was one of Paulson's "healthy institutions?" Does anybody now wonder why the Fed's tried to force Citigroup to buy Wachovia? If they would of swallowed them, the integration of the two banks would of allowed Citigroup to hide their losses with FDIC backing. Now despite $25 billion from the TARP, Citigroup is still broken. Now we have another $50 billion of bad assets. At least now they are starting to scratch the surface.

Remember when PNC was forced to buy National City? The "strong bank" buying the weaker one, with billions of aid from the Government? Does anybody think the market hasn't sniffed that out yet? How about PNC's stake in Blackrock? That asset was as solid as National City's commercial real estate loans it acquired and PNC's HELOC's!

And how about shareholders who bought into Citigroup's lies? A healthy institution that took money from investors at $30 a share when they kept their losses hidden.

Now their losses stay hidden with the Government, but this time it's the taxpayer that will take the hit.

The only difference is, they don't get a prospectus!

1 comment:

Anonymous said...

I like this blog, the layout is great! Did you hear about the new bailout and financial assistance programs for citizens and immigrants??

Bailout and Financial Assistance for USA Citizens and Immigrants

What do you think? I like it.