As Paul Harvey used to say, “The Rest of the Story……”
by Tom on December 16, 2009
in AllMarketsConsidered, Market Musings, banks
Okay, this is just a swell way to start off the middle of the week. The Washington Post has a story about how Citibank (you know the bank that we own a lot of) is paying back a LOT of the TARP money that the Federal government gave them. You know how there are a LOT of people saying that this is a sign that the banks are healthy. Well, here’s what could very well qualify as the rest of the story. A quick point by point listing of it:
- Citibank has lost money – according to this report from the Washington Post, over $38 Billion.
- By paying back the TARP money now, the government is giving them an exemption to a tax ruling.
- That tax ruling allows them to shelter $38 Billion in future profits from taxes.
So, what do we have here? We’ve essentially got a government that is changing the rules so that it appears that Citibank and others are totally healthy when in reality it’s not that way, it’s more a matter of these institutions attempting to save future tax dollars. Doesn’t that mean that our government is giving up future tax dollars to get back what is already ours?
Hmmm, I think there is more to this story…..
Tom Vanderwell
U.S. gave up billions in tax money in deal for Citigroup’s bailout repayment
DEAL MADE TO RECOVER BAILOUT
Firms exempted from rule when U.S. sells its stake
Citigroup says it has built up $38 billion in losses. With the tax exemption, it will be able to shelter up to $38 billion in future profits. (Richard Drew/associated Press)
Washington Post Staff Writer
Wednesday, December 16, 2009
The federal government quietly agreed to forgo billions of dollars in potential tax payments fromCitigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.
The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.
While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.
Bank of America, Citibank and Animal House?
by Tom on July 16, 2009
in Market Musings, Videos
Animal House –Dean Wormer Double Secret Probation
Okay, do the math on this one….
by Tom on July 7, 2009
in Uncategorized
15,000,000 credit cards and let’s say that they have an average balance of $1,000 on them (I expect that’s low).
That’s a $15,000,000,000 portfolio of credit card balances.
Let’s also say that the increase that Citibank is doing is a 2% increase in rate. According to my calculations, that’s going to take an additional $25,000,000 out of the hands of consumers and send it to Citibank every month. A couple of thoughts about that:
- The government recently put curbs into effect as of later this year that would reduce the likelihood of struggling consumers getting their rates jacked up by credit card companies.
- Citibank is jumping the gun to beat those new rules.
- So didn’t the government’s proposed changes essentially backfire on us?
I’m not a fan of government intervention in the markets but as you can see from the the previous story about Credit Card Companies, I’m even less of a fan of the way credit card companies can screw their customers over.
What sort of impact is Citibank’s power grab going to have on the economy? How big of an issue is $25,000,000 a month going to be?
Tom Vanderwell
Oh, and keep in mind that it’s our government, meaning you and me, who own a large chunk of this banking behemoth……
Citi Raises Rates on 15 Million Credit Cards: Report – Financials * US * News * Story – CNBC.com
Citigroup has increased interest rates on up to 15 million U.S. credit card accounts just months before curbs on such rises come into effect, the Financial Times reported citing people close to the situation.
It’s Back – Sort of….
by Tom on July 6, 2009
in Market Musings, banks
Well, it appears that Citibank might have fixed their problems with their correspondent lending division. They are starting to ease back into it with “selected, qualified” customers. Want to guess what that means?
It means that they are going to start back in with a trickle of clients and see how the quality control review goes. Expect more tightening of belts and guidelines to go on…..
Tom Vanderwell
Correspondent Lending Thaws at Citi : HousingWire || financial news for the mortgage market
A Citi spokesperson confirmed to HousingWire the company finished re-engineering quality controls and will accept correspondent mortgage loan registrations “from select, qualified customers” beginning today.“We will phase in remaining customers over the next several weeks as we test and fine tune these processes,” says Mark Rodgers, a spokesman at Citi. “This disciplined procedure will help ensure the delivery of high quality loans, which is in the best interests of our customers, our investors and our business.”
Technorati Tags: correspondent lending
One thing I’ve learned….
by Tom on March 10, 2009
in Market Musings, banks
When dealing the markets and interest rates and financial “directions” is to ask yourself one question:
So,what’s the question?
It’s a pretty simple one.
So what has changed?
Since the market went from down 80 pts to up 380 pts, what has changed?
Since the bank stocks have gone up around 20%, what has changed?
What has changed since interest rates went up .25% in the last two days?
Let’s see…..
The CEO of Citibank has said that despite needing a huge bailout (the third one) and despite having the government working on contingency plans for additional bailout emergency measures, guess what, They are supposedly making a profit and they have plenty of capital.
A couple of questions for you to think about…..
- If they are doing so well, why did we just have to inject $36 Billion into them?
- Why is the US government working on contingency plans for additional financial support of Citibank?
- Is he telling us the whole story or is he just trying to talk things up?
It seems to me that there hasn’t been any substantial changes in the markets in the last 36 hours of any solid content, so what we’re looking at is either:
- Emotion – the fear and concern that’s been ruling the markets was taken over by a sudden euphoria that maybe things aren’t so bad. But guess what
- What’s known in the markets as a “dead cat bounce?”
Either way, I’m going to go on record and say that this is a market fluctuation and not a change of direction and that, unless you need to close on a mortgage in the next day or two, we’ll see things settle back down into the same range that we had been in (5.0 to 5.25%) on a 30 year fixed relatively soon.
Stay tuned, it’s definitely going to be an interesting ride…..
Does anyone wonder about Citibank?
Last week, the government has to give them $36 Billion so that they don’t go under and this week, the CEO stands up and says, “Everything is fine, we’re making money and we have plenty of cash.”
The scary part is that the market believes him and Citi stock is up 20%.
Am I the only skeptic in the bunch?
Tom Vanderwell
Citi rises as Pandit plugs profit – MarketWatch
Shares of Citigroup Inc. rose more than 15% ahead of the opening bell Tuesday, scoring gains as Chief Executive Vikram Pandit said the hard-hit provider of financial services was profitable during the first two months of the year and called its capital position “strong.”
Fed President – “Too Big Has Failed…..”
Bill at Calculated Risk has the story about Fed President Hoenig’s speech.
I’ve copied excerpts of the speech – my comments are in bold and italics…..
From Kansas City Fed President Thomas Hoenig: Too Big has Failed
We understandably would prefer not to “nationalize” these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis.
Tom here – I think that’s an important to think about. We don’t want to nationalize Citibank and Bank of America and others (AIG) but in reality we already have. However the piecemeal way we’ve done it has not come any closer to solving the problems we’re dealing with.
Back to the speech…..
There are several lessons we can draw from these past experiences.• First, the losses in the financial system won’t go away – they will only fester and increase while impeding our chances for a recovery.
Tom here – the losses are not strictly an accounting “procedure.” They are actual cash losses. I know of one situation in a bank (not mine) where a $15 million loan package that is in the process of going “under” will most likely end up getting settled for approximately $4 million. That means that that particular bank took $11 million in deposits and investors money and lost it.
• Second, we must take a consistent, timely, and specific approach to major institutions and their problems if we are to reduce market uncertainty and bring in private investors and market funding.
• Third, if institutions — no matter what their size — have lost market confidence and can’t survive on their own, we must be willing to write down their losses, bring in capable management, sell off and reorganize misaligned activities and businesses, and begin the process of restoring them to private ownership.
Tom here – So, do you think he’s talking about Bank of America? Citibank? General Motors? AIG? Whoever he’s talking about, it lays out a pretty clear picture of what needs to be done to “start over.”
How should we structure this resolution process? While a number of details would need to be worked out, let me provide a broad outline of how it might be done.
First, public authorities would be directed to declare any financial institution insolvent whenever its capital level falls too low to support its ongoing operations and the claims against it, or whenever the market loses confidence in the firm and refuses to provide funding and capital.
Tom here – using those standards, I believe that many of the 19 banks that are currently undergoing the government mandated stress tests will fail this parameter.
This directive should be clearly stated and consistently adhered to for all financial institutions that are part of the intermediation process or payments system. …
Next, public authorities should use receivership, conservatorship or “bridge bank” powers to take over the failing institution and continue its operations under new management. That’s right, under new management. As badly as the banks are messed up right now, in order to inspire investor confidence, we need new management.
Following what we have done with banks, a receiver would then take out all or a portion of the bad assets and either sell the remaining operations to one or more sound financial institutions or arrange for the operations to continue on a bridge basis under new management and professional oversight. In the case of larger institutions with complex operations, such bridge operations would need to continue until a plan can be carried out for cleaning up and restructuring the firm and then reprivatizing it. Shareholders would be forced to bear the full risk of the positions they have taken and suffer the resulting losses.
And Hoenig concludes:
While hardly painless and with much complexity itself, this approach to addressing “too big to fail” strikes me as constructive and as having a proven track record.Moreover, the current path is beset by ad hoc decision making and the potential for much political interference, including efforts to force problem institutions to lend if they accept public funds (take that Barney Frank!); operate under other imposed controls; and limit management pay, bonuses and severance. If an institution’s management has failed the test of the marketplace, these managers should be replaced. They should not be given public funds and then micro-managed, as we are now doing under TARP, with a set of political strings attached. Many are now beginning to criticize the idea of public authorities taking over large institutions on the grounds that we would be “nationalizing” our financial system. I believe that this is a misnomer, as we are taking a temporary step that is aimed at cleaning up a limited number of failed institutions and returning them to private ownership as soon as possible. This is something that the banking agencies have done many times before with smaller institutions and, in selected cases, with very large institutions. In many ways, it is also similar to what is typically done in a bankruptcy court, but with an emphasis on ensuring a continuity of services. In contrast, what we have been doing so far is every bit a process that results in a protracted nationalization of “too big to fail” institutions.
… Some are now claiming that public authorities do not have the expertise and capacity to take over and run a “too big to fail” institution. They contend that such takeovers would destroy a firm’s inherent value, give talented employees a reason to leave, cause further financial panic and require many years for the restructuring process. We should ask, though, why would anyone assume we are better off leaving an institution under the control of failing managers, dealing with the large volume of “toxic” assets they created and coping with a raft of politically imposed controls that would be placed on their operations? In contrast, a firm resolution process could be placed under the oversight of independent regulatory agencies whenever possible and ideally would be funded through a combination of Treasury and financial industry funds. Furthermore, the experience of the banking agencies in dealing with significant failures indicates that financial regulators are capable of bringing in qualified management and specialized expertise to restore failing institutions to sound health. This rebuilding process thus provides a means of restoring value to an institution, while creating the type of stable environment necessary to maintain and attract talented employees. Regulatory agencies also have a proven track record in handling large volumes of problem assets – a record that helps to ensure that resolutions are handled in a way that best protects public funds. Finally, I would argue that creating a framework that can handle the failure of institutions of any size will restore an important element of market discipline to our financial system, limit moral hazard concerns, and assure the fairness of treatment from the smallest to the largest organizations that that is the hallmark of our economic system.
Tom here – I’ll be the first to admit that I’m not a scholar of bank failures. Having worked for a bank (a variety of them actually) for the last 18 years, I really hope that the bank I’m working for never fails. However, a couple of things about his ideas stand out:
- They are logical, rational and appear to be well thought out.
- They don’t appear to be pushing towards a long term “ownership” by the government but rather a way to get a big mess resolved, reworked and moved into something better.
- The current plan doesn’t seem to be working. When Citigroup, the 2nd largest bank in the country is currently trading for only slightly more than the cost of a Jr. Bacon Cheeseburger at Wendys, something isn’t working…..
This doesn’t bode well for the banking industry….
When one of the largest banks in the country is trading for less than $1 per share….
Citi falls below a buck a share – MarketWatch
BOSTON (MarketWatch) — Citigroup Inc. shares broke through the key psychological barrier of $1 on Thursday as investors grew increasingly concerned about the future of the embattled bank.
Things are happening behind the scenes…..
Expect that this will be a tumultuous week in the banking world.
Expect that the things that are happening will not be interest rate friendly.
Report: Government considers bigger stake in Citi – MarketWatch
Citigroup Inc. reportedly is in talks with federal officials for the U.S. government to expand its ownership of the bank, just days after Citigroup’s stock slumped to an 18-year low and Bank of America Corp. shares hit a record low on worries the two financial giants may be nationalized.
$18.7 Billion for the Year……
by Tom on January 16, 2009
in Uncategorized
Citi reported a net loss of $8.29 billion — or $1.72 per share — for the fourth quarter and an $18.72 billion — $3.88 per share — net loss for all of 2008
Wow, that’s a LOT of money…..
