Banks file for bankruptcy: yet they say they have $800M "assets", on $500M deposits?

Discussion in 'Economics' started by crgarcia, Feb 23, 2009.

  1. Have you noticed it, in the news about banks filing for bankruptcy?

    We have $500M in deposits, we have $800M in "assets"

    They why they are filing for bankruptcy?
    Creative accounting overvalues this "assets"
  2. lrm21


    Via Naked Capitalism Blog
    Now consider this observation from a reader in comments:

    I have a personal anecdote about Citi and the difficulty of spotting how bad their loans actually are. I'm involved with a $300 million condo-hotel development in the Caribbean. Citi has the whole loan (i.e., they didn't securitize or otherwise sell participations in the loan). Even now, we expect the hotel needs at least another $100 million to finish construction and open (we are no longer under any delusions that more than a handful of buyers will close on the condo portion of the condo-hotel). So, in other words, Citi is $275M into this project, and it's not certain that the completed hotel will even be worth the extra $100M required to complete and open. Hence, one might plausibly value this $275M loan at zero (i.e., a complete write off). I cannot imagine any stress test would uncover what a huge loss is on the way in the next 12 months. In fact, this loan has not even been pawned off to the nonperforming/distressed debt/workout section of Citi because the interest reserves make it "seem" like the loan is still performing, not to mention that completely out of date pro formas make it "seem" like (i) equity will come in to finish the project and (ii) condo sales will pay down a huge part of the principal once construction is complete. This scenario must be present in a large number of Citi loans, especially in their somewhat active foreign development divisions. Citi must be so far from solvent that it's not even funny. Only hyperinflation in the dollar could ever make it possible for the borrowers to pay back some of these loans. I'd bet that the sooner we face reality on some of these loans and just halt future fundings, the less money the taxpayers are going to lose. As it is, it's almost too late. Too bad for the US taxpayer.

    This is merely one story, but there has been a fair bit of coverage in the business press as to how a lot of real estate development, particularly high end resort, is being mothballed or simply cancelled. So there are no doubt other deals like that at Citi and other US banks.
  3. How did we ever allow these Real Estate vipers to take over the world?

    This whole development thing should have been heavily regulated from day 1.


    Look at the dickwad Trump, 3rd bankruptcy. Tell me his ass shouldn't be in jail.



    This would make a penny stock promoter blush.