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prophet
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Posting #11: Tue Nov 27th, 2007 08:38 |
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"The fear of Bank failure is an exaggeration.
How can bank fail when Federal Reserve in pumping in excess liquidity and keeping the interest rates low ?
Although this is a bail out, but to US this is the correct approach to do. !"
Is it an exaggeration? Isnt this the whole problem of the US at this stage? Whether its the correct approach or not we will see with hindsight. Grreensppok tried with easy credit....look what happened?
Yes, Dubai may buy citigroup. So what? i already showed you what happened to the chinese with blackstone. The US mkt is at a precipiece......the clock is right twice a day.....you will be right maybe in ten years time.....so may the Dubai investment be in the far future.
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prophet
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Posting #12: Tue Nov 27th, 2007 08:41 |
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| By the way, we dont know how crocked the bank assets are yet at this stage in comparison to their liabilities.....the sh*te may just be beginning.......
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stockraider1
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Posting #13: Tue Nov 27th, 2007 10:56 |
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Dear Prophet,
My view is different from yours-hope u do not mind we go through critically.
Let take Citibank the share price has been battered down from close to US 70 to US 30 within a very short period.There is alot of fear being priced into citibank share price
Citibank being one of the most innovative and profitable bank in the world would not go bankrupt !
Once it takes its medicine it would recovered,in fact Citibank are taking action by slashing 17000 to 45000 jobs out of its total worlwide employment of 300,000.
This means there is a worldwide income saving of at least US 1 billion p.a.
Citibank reporting standard is much better than any of Msian standard say Maybank, hence can actually trust its reporting.
Conclusion Citibank would recovered.!
Look at our 1998 Asia criss crash, where maybank drop from Rm 10.00 to Rm 2.40, however this fall is driven by interest rates at high of 16% p.a with liquidity squeeze as well.
In the current USA case, the 10 yr treasury interest rates actual decline from 5% p.a. to less than 4% p.a.
Market collapse severely not bcos of recession, but it collapse more towards high interest rates due to liquidity squeeze !.
Right here Federal reserve is ensuring ample liquidity at fair interest at 5.5% p.a.
This is unlike the Great Depression 1929 where mkt collapse, is driven by very high interest rates and liquidity squeezed !
Without high interest rates and the collapse of USA dollar, equity investor will have a party time picking up undervalue and competitive multinational stocks, which is not only not affected by dollar depreciation but in fact driving up its profits due to gaining competitive fundamental internationally.
Hence do not let fear exaggeration, as if there is no tommorrow played us out, stick to fundamental and company which has a franchised or competitive advantage over time there will be handsome gain !
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prophet
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Posting #14: Wed Nov 28th, 2007 02:12 |
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There is a reason to fear......why do you think they needed the 7bil capital injection in Citi?
Of course Citi may not go bankrupt BUT its POS can go lower to reflect its skeletons in the closet. These are the crocked assets which is not informed yet. They will be revealed bit by bit.
Next recession is already in the US. Lookie at the housing collapse...The liquidity squeeze is not cos of high interset rates but due to collapsing of asset value of finance cos. Case in point, the last cut in rate has not help the mkt at all! You cannot have the liquidity without asset backing in the finance cos. Thats why they are segregating the asset classes ro work out the value of assets. Some cannot even be evaluate! such as hedge funding! So, the bottom line is the finance cos are crocked at this point of time and may get worse as the value of their assets is being unfolded.
BTW since you are so supportive of the US mkts, are you doing what your mouth is saying? Buy citi for eg? 
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stockraider1
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Posting #15: Wed Nov 28th, 2007 08:26 |
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The bottom line is that when mkt collapse the strategy are as follows;
1)Is the underlying business is damaged beyond repair or is it a temporary affair ? If it is only a temporary affair it is good 。
2)Has the cost of doing business or investment increase tremendously or is it more a less the same and even cheaper ? If the comparative cost or opportunity cost has not increased this is again positive here interest rates has come down to less than 4% p.a and the cost advantage of US based company improve by 30% !
3)Has the assets or business price has fallen excessively agst intrinsic value and the business profitability agst the benchmarked funding cost looks highly attractive ? The benchmarked 10 year treasury is 4% p.a therefore risk free return PE 25 times hence as a rule of thumb business can be secured at below PE 12 and dividend yield exceeding 4% will be attractive. Furthermore if we can buy business at less than 67% of the intrinsic value will provide good margin of safety>
4)Is the underlying financial and business strength still strong and the overall business condition still looks favourable ?
Looking at the balance sheet of the company still stable and there is overall competitiveness where USD has deteriorated, this make the multinational USA company even stronger v European company again very positive investment opportunities !
5)Doomsday issue like sub-prime, currency depreciation, trade deficits as time goes by will be price in and discounted by the market.
The strategy is to pick a good bargain based on the underlying strength of the business as always market will always overeact and it is here we can actually take advantage of it.
6)Btw fear will disappear when the problem encountered is being acknowledge and action is taken to address it ?
In the case of citibank mkt see it is positive bcos positive action has been taken with the US 7 billion injection.
MKT will be worried when there is a state of denial like what happen in Asia Financial Crisis !
At the moment mkt has factored in sub-prime impact ranges from US 150-300 billion
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prophet
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Posting #16: Thu Nov 29th, 2007 00:45 |
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Good questions, BUT
a)Has the mkt collapse yet?  Maybe more to come IMO
b)Has it fallen to its intrinsic values...no one knows til ALL the skeletons in the closet aka subprime, hedgefunding and the like is exposed and a mechaniusm (which is yetto be established) to value them! Your balance sheet will be properly evaluated when all these are revealed and PROPERLY evaluated
c) Citi income is dependant on whether a recession comes, never say never
d)Yes ALL these will be priced in EVENTUALLY...and when that happens, CITI maybe worth much less?
e) The injection by the Abu Dabi Grp is by acquiring high-yield, convertible stock that must be exchanged for common stock between March 2010 and September 2011. Its NOT even direct stock buying. Its getting yeild as it is now. Citi must be desparate for this injection! Smells of assets/liability balancing problems? Remember also dilution.....
f) Stateof denial is one. Also hidding skeletons is another. This is being slowly exposed......when hedge funds starts failing.....the fireworks will start...u aint seen nothing yet.
BTW did you put your $$$ where your mouth is? BUY Citi eg?
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prophet
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Posting #17: Fri Nov 30th, 2007 01:15 |
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Citi of Arabia
Abu Dhabi takes Manhattan--and Washington, too?
Thursday, November 29, 2007 12:01 a.m.
Investors seem delighted that Abu Dhabi is injecting $7.5 billion into Citigroup, bidding up stocks in general on new confidence that the mortgage solvency crisis might ease. We hate to spoil the party, but it strikes us as unfortunate, if not a tragedy, that America's largest bank had to go hat in hand to Arab sheiks because of bad management and blundering U.S. monetary policy.
The Citi play is being spun as a master-stroke by Robert Rubin, the chairman of the bank's executive committee. The bank gets a capital infusion without having to cut its dividend, and gives up only a minority stake while Abu Dhabi gets no seat on the board. Even better from a political point of view, Abu Dhabi will be able to convert shares for no more than a 4.9% stake, which comes in just below the 5% level that requires approval by the Federal Reserve. Mr. Rubin even seems to have greased the skids on Capitol Hill, with New York Senator
Chuck Schumer already forgetting his campaign against Dubai Ports World.
Citigroup did have to shore up its balance sheet, and we suppose petrodollars are a better source of capital than U.S. taxpayers under a "too big to fail" doctrine. On the other hand, where were Mr. Rubin and the bank board when Citi was betting so much on subprime? Given the 11% the bank is paying Abu Dhabi, Citigroup's other equity holders might also be better off down the road had they taken a dividend cut instead.
Most important, no one should be under any illusions that Abu Dhabi's investment is a normal commercial transaction. It comes from a sovereign wealth fund controlled by a foreign government, which has political as much as business interests; from an Arab government that has a troubling history with American banking laws; and it offers a Middle Eastern entree into the U.S. financial system that since 9/11 plays a pivotal role in the war on terror.
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prophet
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Posting #18: Tue Dec 4th, 2007 03:45 |
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The $41B Bomb Citi Doesn't Want You to Know About
posted on: December 02, 2007 | about stocks: C Print [url=mailto:?subject=The $41B Bomb Citi Doesn't Want You to Know About&body= Thought you might find this article on Seeking Alpha interesting: http://seekingalpha.com/article/55982-the-41b-bomb-citi-doesn-t-want-you-to-know-about]Email[/url]
Part of our job here is to call “Shenanigans” when we see them. Earlier this week, Citigroup (C) announced that they had cut a deal with the Abu Dhabi state-sponsored fund, AIDA, to pump $7.5 billion into the company. This has since been widely hailed by the media as the reason that the market has begun to rebound.
Balderdash!
The market rebounded late this week because, a) it was incredibly oversold; and b) we’ve seen the US Dollar rally, and that has taken some of the air out of oil prices.
If you closely examine the Citigroup deal, you will see that it is executive denial at its finest, and is not in the interest of shareholders… well, maybe Abu Dhabi’s shareholders. After all, they managed to secure 5% of an iconic American bank at multi-year lows for the equivalent of about 5 billion Euros. Oh, and did I forget to mention that it’s a convertible preferred that pays 11% and is convertible into common stock between $31.83 to $37.24 a share?
So, why did Citigroup agree to dilute existing shareholder interests by 5%? Why didn’t they just cut the $10 billion in dividends that they pay each year? More importantly, why wasn’t this deal done with an American institution?
I’ll tell you why. Citigroup didn’t go with an American buyer because any American buyer would have demanded a seat on the board and a voice in righting the ship. Heaven forbid that the company get an outspoken voice for change!
Their foreign friends are apparently quite happy to take their 4.9% stake with no board seat. They took 4.9% so they didn’t trigger the filing requirements of a 5% stake. Mmm, I wonder why? What do they have to hide?
Citigroup is making decisions akin to the executive that gets laid off but wants to keep up appearances. Our laid off exec knows he can’t afford that country club membership and his big Mercedes Benz anymore, but he’s determined not to be embarrassed in front of his peers. Too late, buddy, the problems at Citigroup are just too big to indulge in that type of denial. The company holds approximately 41 billion dollars in direct sub-prime exposure via standby loan guarantees, but they hold it “off balance sheet”.
Remember that the Structured Investment Vehicles (SIVs) borrowed billions by issuing short-term commercial paper at low rates, then went out and bought riskier long-term bonds at higher rates with the proceeds. In order to receive an investment grade on the commercial paper that they were selling to fund their operations, the banks guaranteed that if the SIVs got in trouble they would pay back the commercial paper holders.
Well, guess what? The SIVs can’t pay! The non-payment by the SIVs has triggered the standby loan guarantees. In accounting circles, this is called a “reconsideration event”.
That simply means, "Hey, dummy, the risk of this vehicle needs to be reconsidered! Maybe it's time to put this changed risk on your balance sheet!”
Apparently, the triggering of the standby loan guarantees and a shiny brand new $41 billion liability isn’t a big enough event for the geniuses at Citigroup to acknowledge. These so called “professional money men” are indulging in the worst kind of self-deception, usually seen only among rank amateurs and substance abusers.
I understand why Citi’s doing what they are doing. Their internal Tier 1 capital range is in danger of being violated. Their Tier 1 capital ratio (that’s the ratio of bank capital to outstanding loans) currently stands at approximately 7.5%. The regulators will let you get all the way to 6% before they’ll pay you a visit, but Citi doesn’t want to look weak. Their logic is if they can’t even meet their own self-imposed capital ratios of 7.5%, it's just another reminder of how poorly they have managed their risk.Here's the wake-up call. EVERY PLAYER ON THE PLANET KNOWS YOU SCREWED UP. YOU ARE NOT FOOLING ANYONE. Like a little boy attempting to whistle away his fear as he passes the graveyard, Citi is running scared, and everybody knows it.
They should take a page out of HSBC’s (HBC) book. HSBC came out this week and formally announced that they would shift two Structured Investment Vehicles from “off balance sheet” status to “on balance sheet” status. The two funds represent about $35 billion in total liability. Here we have a management team doing the tough but right thing, no burying the corporate head in the sand here.
In order for the financials to recover a measure of the lost investor confidence currently plaguing the sector, many more banks must follow HSBC’s lead and come clean about every piece of “off balance sheet” exposure they currently face. The sector will not be a buy until they do so.
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prophet
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Posting #19: Tue Dec 11th, 2007 00:54 |
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MORTGAGE MELTDOWN
Interest rate 'freeze' - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison
Sean Olender
Sunday, December 9, 2007
New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.
Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.
But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.
The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.
I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."
Despite Thursday's ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?
The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.
The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.
Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?
What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back. The time to look into this is before the shredders have worked their magic - not five years from now.
Those selling the "freeze" have suggested that mortgage-backed securities investors will benefit because they lose more with rising foreclosures. But with fast-depreciating collateral, the last thing investors in mortgage bonds ought to do is put off foreclosures. Rate freezes are at best a tool for delaying the inevitable foreclosures when even the most optimistic forecasters expect home prices to fall. In October, Goldman Sachs issued a report forecasting an incredible 35 to 40 percent drop in California home prices in the coming few years. To minimize losses, a mortgage bondholder would obviously be better off foreclosing on a home before prices plunge.
The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. If the investors agreed to loan modifications with the "real" wage and asset information from refinancing borrowers, mortgage originators and bundlers would have an excuse once the foreclosure occurred. They could say, "Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!"
The key is to refinance borrowers whose current loans involved fraud in the origination process. And I assure you it was a minority of borrowers whose loans didn't involve fraud.
The government is trying to accomplish wide-scale refinancing by tricking bond investors, or by tricking U.S. taxpayers. Guess who will foot the bill now that the FHA is entering the fray?
Ultimately, the people in these secret Paulson meetings were probably less worried about saving the mortgage market than with saving themselves. Some might be looking at prison time.
As chief of Goldman Sachs, Paulson was involved, to degrees as yet unrevealed, in the mortgage securitization process during the halcyon days of mortgage fraud from 2004 to 2006.
Paulson became the U.S. Treasury secretary on July 10, 2006, after the extent of the debacle was coming into focus for those in the know. Goldman Sachs achieved recent accolades in the markets for having bet heavily against the housing market, while Citigroup, Morgan Stanley, Bear Sterns, Merrill Lynch and others got hammered for failing to time the end of the credit bubble.
Goldman Sachs is the only major investment bank in the United States that has emerged as yet unscathed from this debacle. The success of its strategy must have resulted from fairly substantial bets against housing, mortgage banking and related industries, which also means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans.
If a mortgage bond investor sues Goldman Sachs to force the institution to buy back loans, could Paulson be forced to testify as to whether Goldman Sachs knew or had reason to know about fraud in the origination process of the loans it was bundling?
It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.
I suspect that such a group first sat down and tried to figure out how to protect their financial interests and avoid criminal liability. And then when they agreed on the plan, they decided to sell it as "helping working families stay in their homes." That's why these meetings were secret, and reporters and the public weren't invited.
The next time that Paulson is before the Senate Finance Committee, instead of asking, "How much money do you think we should give your banking buddies?" I'd like to see New York Sen. Chuck Schumer ask him what he knew about this staggering fraud at the time he was chief of Goldman Sachs.
The Goldman report in October suggests that rampant investor demand is to blame for origination fraud - even though these investors were misled by high credit ratings from bond rating agencies being paid billions by the U.S. investment banks, like Goldman, that were selling the bundled mortgages.
This logic is like saying shoppers seeking bargain-priced soup encourage the grocery store owner to steal it. I mean, we're talking about criminal fraud here. We are on the cusp of a mammoth financial crisis, and the Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends under the guise of trying to help borrowers. At stake is nothing short of the continued existence of the U.S. banking system.
Sean Olender is a San Mateo attorney. Contact us at insight@sfchronicle.com.
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prophet
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Posting #20: Mon Dec 17th, 2007 01:30 |
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Citigroup reveals $49 billion subprime blow amid ratings downgrade
Dec 14 05:39 AM US/Eastern
The world's biggest bank Citigroup is taking on board 49 billion dollars' (34 billion euros) worth of hugely devalued subprime loans to reassure markets amid a credit downgrading on concern about its capital base.
The announcement by Citigroup late Thursday insisted that the bank was dealing with the damage done by the US home-loan crisis, just as financial markets showed renewed alarm about the fallout and scepticism over central bank measures to shore up confidence.
Saying that the assets concerned had fallen from 87 billion dollars in August to 49 billion dollars, the bank insisted it was "maintaining the overall high credit quality of the portfolio."
It expected to make "orderly asset reductions" which would be enough "to meet liquidity requirements" until the end of next year, which currently stood at 35 billion dollars.
"As assets continue to be sold, Citi's risk exposure, and the capital ratio impact from consolidation, will be reduced accordingly," it said.
But Citigroup's statement contrasted with concern by Moody's investors Services which downgraded severel of the bank's credit ratings on Thursday, warning that "Citigroup's capital rations will remain low".
Moody's senior vice president Sean Jones said that this was likely because the bank "will need to take sizable writedowns."
Moody's also said it expected the bank to make "significant sustained provisions against its residential mortgage book, which is over 200 billion dollars" and that these charges would occur "when Citigroup's normal earnings power is depressed."
Furthermore "Citigroup's weak earnings should prohibit the bank from rapidly restoring capital ratios, despite its recent issuance of 7.5 billion dollars of hybrid capital."
And Moody's warned: "The company's failure to restore its capital ratios in the medium term would possible lead to a further downgrade."
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