Nationalization =Crushing Bond & Preferred Holders?

Discussion in 'Economics' started by Cdntrader, Feb 24, 2009.

  1. Nationalization =Crushing Bond & Preferred Holders?

    Is this why they don't want to nationalize and clean up the mess?

    If they did, what are nightmare scenarios for systemic risks?
  2. so instead there going to take down the entire global economy into the gigantic shit hole they've created.
  3. Daal


    I think they dont want to nationalize because maybe the FDIC is saying they cant run the banks as they are too big and difficult. The former chair of the FDIC is saying its a bad idea, maybe Sheila Bair thinks that too. I think the debt at large banks wont be wiped
    If they wack C debt($500b), they are essentially creating another LEH and rolling the dice that the $500b wont fall in delicated hands setting off a cascade of defaults and counterparty fears. Maybe some kind of debt to equity swap
  4. thanks for links. Very interesting.

    None of this sounds very good for things going forward. Looks alot like Japan. Even though Bernanke denied it today(wihout actually coming up with how its any different)
  5. I'm sorry, but I have a huge problem taking Bill Gross seriously. The guy filled his portfolio with MBS and the preferred shares of banks and then stuck his face in front of every available camera to stump for a bailout plan that specifically helps his positions.

    He may or may not be smart, but his persistent conflict of interest forces me to discount everything he says.
  6. Well, you know....

    The government does such a bang up job running the post office, DMV, etc. that I can't <i>imagine</i> it wouldn't make an excellent bank manager. Especially considering that most of the cause of all this mess and "systemic risk" is rooted in the governments extremely wise regulation and legislatures' decision to override lenders' credit analysis of borrowers in order to increase home "ownership". Nope. No problem there.
  7. Citi bondholders breathe sigh of relief

    By Aline van Duyn in New York

    Published: February 27 2009 18:08 | Last updated: February 27 2009 18:08

    Owners of bonds in Citigroup were relieved that the US government’s move to become the single biggest shareholder of the bank appeared to leave their holdings intact.

    Prices on bonds remained elevated due to continued uncertainty about the success of the plan to recapitalise Citigroup, but the prospect of bondholders having to take sharp losses as part of a restructuring seemed lower.

    “Everything looks better for bondholders because the new capital for Citigroup has come in below them [in the capital structure],” said Jason Brady, portfolio manager at Thornburg Asset Management. He said senior debt prices had not improved much on Firday because investors wanted further reassurance that the plan would not change again.

    Even as holders of bonds appeared more secure, the situation for other investors remained uncertain.

    The crisis around Citigroup has highlighted the risks associated with preferred shares, an asset class that has been pounded and where determining value has become “a crapshoot”, said Greg Peters, strategist at Morgan Stanley.

    A type of “hybrid” security, preferred shares combine some of the risks and potential enhanced returns of equity but also some of the safety features of debt such as regular interest payments.

    This year, Citigroup’s preferred shares have traded between 72 cents on the dollar and 10 cents on the dollar, highlighting the immense uncertainty around their value and how investors would fare in the event of any government intervention to prevent the bank’s collapse.

    The terms offered by the US government on Friday could boost the value of preferred shares to as much as 50 cents on the dollar, according to some dealers. Before the government announcement, they were trading about 20 cents on the dollar, and on Friday rose to around 38 cents.

    But investors are reluctant to buy due to the enormous uncertainty about whether the Citi plans will be applied to other banks, dealers said.