Citigroup Update: Reports Emerge Of Possible Plan By Charlie Gasparino, 23 Nov 2008 Citi officials are reportedly working on a plan that could include a capital injection from the Federal governmentâamong other possible ideas. The details have yet to be hammered out and it's not clear when such a plan would be announced. Officials from Citigroup and the government had been discussing ways to stabilize the company's stock price over the weekend. As of Saturday afternoon, the general consensus between officials from Citi and government officials from the US Treasury department and US Federal Reserve is that the government will not takeover Citigroup in the way it took control of AIGâby lending the firm massive amounts of money and in return assuming a huge equity position. Government officials fear taking over Citigroup would create a precedent: Unlike AIG, Citigroup's balance sheet is relatively healthy, with relatively strong levels of capital particularly compared to most of its competitors. Still, officials from the Treasury and Citigroup are unsure what it would take to restore confidence in the company, including a possible smaller capital injection or some sort of statement that Citigroup is financially sound. For that reason, Citigroup officials are continuing to explore possible merger possibilities and a spin off of some of Citigroup's businesses, even as CEP Vikram Pandit publicly stated the sale of the firm's massive and coveted broker business, Smith Barney is off the table, these people say. Both officials at Citigroup and in the government concede the situation facing Citigoup is daunting. Because of Citigroup's size and scopeâit operates in just about every country and competes in just about every financial business, the company's survival is a national concern. Citigroup has spent the past week telling investors that its capital position is strong, but investors have lost confidence in the current management led by CEO Vikram Pandit who has been in the job less than a year, and the firm's board, which appeared to ignore widespread calls by analysts to integrate the firms operations and slash its massive workforce until recently. Meanwhile, various merger possibilities seem slim. A deal with investment banks Morgan Stanley or Goldman Sachs would create massive overlap and would lead to huge layoffs. There aren't many banks with a strong deposit base that Citigroup can buy with its depressed stock price. Pandit, for his part, has cut the workforce to 350,000 from 375,000 and just announced another 50,000-job cut by early 2009. But for investors, those moves were too little too late. Nearly a year ago, Citigroup's share traded at around $50. On Friday they traded at $3.77 and failed to rebound even as the Dow Jones Industrial Average of large company stocks spiked nearly 500 points on the news that President-elect Barack Obama will name NY Fed President Tim Geithner as his new Treasury Secretary. Because Citigroup is a bank it has access the the Federal Reserves discount window, and because of its size, there is virtually no possibility of the bank failing and filing for bankruptcy as investment bank Lehman Brothers did. "Citigroup is too big to fail; the government wont allow that because the firm is involves in so many business both institutional and consumer around the world," said one bond trader with detailed knowledge of Citigroup's operations. But the lack of confidence coupled by the falling stock price could pose other problems, such as a run on bank deposits, where worried depositors yank their money from their Citigroup accounts, or investors pulling their funds from their Smith Barney brokerage accounts. A Citigroup spokesman declined to say if the company is experiencing either of those scenarios. For that reason, Citigroup officials continued to work over the weekend to possibly unveil some sort of plan of action by Monday morning. "Everyone knows saving Citigroup is important to saving the economy, but no one knows what to do," said one person close to the firm. ************************************ Update: The government is looking to buy a substantial amount of assets from Citi, similar to a good bank, bad bank structure. The government would absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government. The deal is not finalized but could be announced tonight. While the Feds could buy more than $100 billion nominally in the bad assets if the plans go through, that doesn't mean it will pay Citi $100 billion, depending on the final valuation of those assets. According to people with knowledge of the discussions between Citigroup and the government, the plan for Citi resembles the original TARP proposal, in which the government would buy bad assets for financial firms at some price higher than what's being offered in the market. People close to the matter underscore that none of this is a done deal: Other deals, such as the Lehman Brother Good bank / Bad bank proposal blew up at the last minute. Citigroup had no immediate comment. CNBC is still waiting on comment from the Treasury and Federal Reserve. Reports from Washington say the White House is unaware of any government talks with Citigroup. It also declined comment on whether President Bush would back a government rescue of Citigroup. ************************************** White House says unaware of any Citigroup rescue talks Sun Nov 23, 2008 4:56pm EST ABOARD AIR FORCE ONE (Reuters) - White House spokeswoman Dana Perino said on Sunday she knew of no talks going on between banking giant Citigroup and the federal government for financial aid. Speaking to reporters traveling with President George W. Bush, who is returning to Washington after attending the Asia-Pacific summit in Peru, Perino declined to comment on whether the president supported a federal rescue package for Citigroup. Citigroup is reeling from the economic slump gripping the United States and its stock tumbled last week. Citigroup's board was reported to have met on Friday to discuss the bank's options, touching of speculation about a possible government rescue
Dear JackR, Thank you for the kind words. IB does have a "limitations" section on it's Funds and Banking page that does highlight hold periods. I've attached the link below for reference. http://www.interactivebrokers.com/en/p.php?f=funding&ib_entity=llc Regards, Joe
This seems like an approriate time to revisit this topic. A few months ago, it seems like the general consenus was "Don't worry about IB's relationship with Citi. IB has it covered either way.". Well now Citi is trading at $1 (literally!) :eek: IB's website still says that they spread funds "across at least six of the largest banks". Does anyone know how they define largest? By market cap? Assets under management? Other? In November Def said "Your wire may go into Citibank but funds do not necessarily remain there." Ok...well, the word "necessarily" is a bit of a red flag given Citi's current state. Does anyone know if IB is still holding funds at Citi? IB reps (Def, etc.) feel free to speak up here!
C depositors are safe because they got $500b in unsecured debt bellow then in the capital structure. Plus whats left of the pref and common shareholders. If you wipe all of those out C leverage goes to 4-1. And I'm referring to the black swan scenario the FDIC takes them over and liquidates instead of selling the deposits to somebody else
Problems: 1. C will lose more than $500 bill 2. At 4:1 leverage, a further 25% fall in the loan portfolio (quite likely) will wipe out all deposits. 3. It's unlikely anyone else except the US government will be in a position to take over C's deposit base. All the other big banks are in trouble too, and C's deposit base is gigantic. However, the US government would almost certainly bail out C depositors. Still, a soundly managed broker should be minimizing their exposure to the banking system at this point, and keeping most of their capital in t-bills, nothing else.
Citigroup RWA is $1.4 T. You think that will lose $600b?Yeah right(Keep in mind TONS of stuff got already marked down, the securities side has already 'lost', its mostly a matter of the held to maturity loans) Mortgage deliquencies are at 8% overall Its fun to be bearish and call the end of the world but 92% of mortgages are being paid on time. Sure that will rise but there are recoveries involved http://www.housingwire.com/2009/03/05/mba-delinquencies-hit-record-788-in-q4/ A 20% deliquency with 40% recovery dont create any number near yours, specially when you add that C already took massive mark downs If there is a massive depression that kind of loss would occur but from a baeysian point of view that is unlikely, specially since there is no evidence of significant protecionist moves. And 99% sure uncle sam would either transfer the deposits to another institution or would pay up
It's likely that Cutten's analysis is correct. However deposits at Citigroup are probably safer than those at most US banks, because (like AIG), the US govt will probably provide huge amounts of capital to the company in the coming months / years if required.
I'd say at this point that Citibank is safer than almost any bank in the country. I may transfer some funds there. OldTrader
It's pretty simple. Housing had a historic bubble, just like dot.coms in 99-2000. The fall will be the same. Minimum 50% fall in real estate globally. Probably more like 60-80%, as in Japan in 1990-2003. Now, work out the impact of that kind of fall on C's balance sheet. Bear in mind that the value of industrial loans will also fall very far if real estate falls that far. And consumer wages and employment levels will get hammered if real estate and industrial solvency fall that far. It's a triple whammy across the main three segments that C lends to. Using those figures you easily get more than $500 bill. If assets in general fall 75%, then the sum on a balance sheet basis is over $1 trillion for C alone. Current delinquency stats are irrelevant. Did you watch the delinquency rates for 2007 and use them to make trades in 07-08? I hope not. What matters is not what delinquencies are right now, but what they will be in future. In 2007 I was here posting that we would have the worst housing bust since the Great Depression. I was poo-poohed by people like you who used 2007 stats to show how things were fine. But I am a speculator, not a historian or a reporter of current affairs, and so I trade based on what is going to happen in the future, not the present or near-past. And what is going to happen in the future is that delinquencies are going to go way higher than you have said. 20%? *Unemployment* may even get that high, let alone delinquencies. Those still lucky enough to have jobs will be earning far less, after all. And with dumb US foreclosure laws, once you go into negative equity on a home there is little incentive not to walk away from the mortgage. it is not like Europe or Latin America where the mortgage is tied to the borrower. In most of the US it's tied only to the property. Hence defaults will be *far higher* than the rest of the world - which will have high enough levels as it is. Protectionism is not necessary for this to happen (but we will probably get some anyway). All that is necessary is for house prices to fall 50-80%. And from a Bayesian perspective, the conditional probability of such a fall, given a prior historic bubble, is closer to 100%, than the 1% you claim.
Why do that when you can buy Treasury notes and have far lower credit risk? Where to park capital is a valid question. Right now I would say that a mix of government bonds (not too long-dated) is best, with some physical gold (in various safe locales including abroad), and some cash in fireproof safe deposit boxes at home or secure non-bank locations as a disaster insurance. I view holding substantial bank deposits as rather risky. There is enough risk with whatever funds you have at a broker, no need to increase that risk by using banks. For working capital, use credit - credit cards in the interest-free period, preferential overdraft rates etc. That way if the bank goes down you don't lose anything, yet you retain the convenience factor of the banking system. This provides a nearly risk-free place to store 70-80% of your life savings, with a further 20-30% in diversified but still fairly safe assets and locations. And as a kicker, if financial armageddon occurs, you will probably actually make a windfall profit on the gold and bond positions.