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The Big C


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This sorry excuse for a "capitalist" organisation has just received one of the largest handouts from a state body ever given to any organisation by any nation in history. Even after you adjust for inflation and interest. Marx, Lenin, Stalin and Trotsky will all be applauding from their grave.




US throws Citi $500b lifeline


The US government has unveiled a bold plan to rescue troubled Citigroup, including taking a stake in the firm as well as guaranteeing $US306 billion ($500 billion) in risky assets.


The neo-cons are nothing but roaming derelict dinosaurs feasting themselves on their own greed and gluttony at the expense of everyone else. Then when they can't pay for it themselves because they have fallen foul of their own stupidity and incompetence of largesse they jump to the front of the que with cap in hand.


If anyone ever took note of the headlines on this company, they would with a cursory glance know that the name C Citigroup is synonymous with borderline legaility and unethical market practice.


One need only look at the recent inside trading case of TOL holdings and the loophole in the legislation they wriggled out of there. I read on the ASIC site one of their staff was banned from practice or fired for embezzlement or some such thing.


I'd like to know how many of these things don't make the public domain.


Going beyond Australia though we can see the authorities came down on them in Japan. The crime? Improper practices against their private client base.




FSA investigators fault a culture where profits were chased at any cost. Bank officials allegedly misled some clients about their investments and gave loans to others that were used to manipulate stocks. Worse, regulators had warned Citigroup in 2001 about similar problems. "Quite frankly, we had some people doing bad things," Prince said in November.


Moving further afield we know they fell foul of the authorities in the EU for some unethical market manipulation practices.


I am sure if we looked at the other continents of Latin America, Africa a Eastern Europe and the Middle East we would find similar such behaviour. All except for the US itself.


We now know that such behaviour is actually condoned and encouraged with the mantra of, don't get caught. If you do, your'e fired. It is so because they know ultimately that when they manage to wreck and destroy everything they have touched the government will come along and just bail them out.


I know there are many different types of bankruptcy. I was once told it by someone more intellectual than myself. They include the bankruptcies of morals, ethics, dollars, intellectualism, honesty and humanity. Many more can be named.


After looking at that headline in the SMH, it is fair to say the Big C is just plain bankrupt.


The shame and humiliation for being a part of it is deserved in my opinion. And the journos over at the SMH should be commended for informing their audience of the goings on at the Big C.


And the last laugh is always the loudest. http://www.sharescene.com/html/emoticons/laughingsmiley.gif ROFLMAO

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After the $309 billion of toxic assets have been ring-fenced, Citigroup will take the first $29 billion of losses. Citi will continue to take 10% of the losses after that, too, but the lion's share of the second $5 billion of losses will be taken by Treasury, using TARP funds. In return for taking on that $5 billion of contingent losses, Treasury will receive $4 billion of preferred stock, paying 8% interest per year, up front.


In other words, the deal is essentially pricing in the expectation that Citi's toxic assets are worth much less than Citi has valued them at -- so much less, indeed, that Treasury (a/k/a the taxpayer) is probably going to have to pay out the full $5 billion, even after Citi has lost a further $30 billion over and above the write-downs it's taken already.


Of course, it's not quite as simple as that. The FDIC (a/k/a the taxpayer) is taking a $10 billion third-loss tranche, and the Federal Reserve (a/k/a the taxpayer, even if it's nominally owned by the banks) is on the hook for hundreds of billions of dollars more, and isn't getting any preferred stock at all.


In addition to $2 trillion in assets Citigroup has on its balance sheet, it has another $1.23 trillion in entities that aren't reflected there. Some of those assets are tied to mortgages, and investors have worried they could cause heavy losses if they are brought back on the company's books...


Despite the unprecedented scope of the rescue plan, it's not clear whether it will be enough to stabilize Citigroup. The roughly $300 billion pool of assets that are included in the rescue plan represent only a sliver of the company's more than $3 trillion in assets, including its holdings in off-balance-sheet entities...

Among the off-balance-sheet assets are $667 billion in mortgage-related securities.


The US government might have guaranteed a chunk of Citi's assets, but it's done nothing about Citi's liabilities, including hundreds of billions of dollars in unguaranteed deposits, which are essentially unsecured senior debt yielding much less than Citi's unsecured senior bonds. Nothing in today's announcement makes Citi immune to a bank run, which means there's a very good chance the stock will remain under significant pressure.

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A good time to buy their debt I would imagine. Equity is to be avoided at all costs.


This is the Japanese bad loans bank crisis in English. That took ten years to work its way through but the bond holders still got paid.


The fact is the systemic risk has been plugged but the markets and real economy are still in for a pounding.

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There is a strong argument to be made for American Express to take this mutt out. Or at least show an interest in their consumer credit and wealth management businesses.


Both companies have a long history in this area and it might even suit AMEX to obtain a banking licence in those jurisdictions they don't already have one but would dearly love to have one. Jursidictions like Australia.


Even better if the Four Pillars policy get adjusted to five or tweaked some other how.


But the equity is a write off. Even the Feds know it.


And credit to Cyclops on such an excellent post.

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In reply to: plastic on Tuesday 25/11/08 02:08pm

There's been quite a few big " pillars" set up shop in Australia from time to time but they don't commit to an expensive branch network, so they struggle to attract retail deposits, and they tend to disappear or at least " consolidate " operations when times are hard.

So I wouldn't expect any meaningful effect on the Aust banking system to flow from any developments o/a Citi.






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In reply to: plastic on Tuesday 25/11/08 02:08pm

Take all the dogs out - the power to create money and destroy money should not be in private hands.


If we are going to privatize the profits and socialize the losses, well sorry, I don't feel comfortable be a sucker.


Nationalize all these pigs of institutions , and send the mongrels in management that made millions out of the OTC derivatives to JAIL.

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In reply to: macduffy on Tuesday 25/11/08 05:42pm

Perhaps that is so in Australia. However, there is still a good argument for it in the US as far as a retail presence is concerned. And I am sure AMEX would be interested in their consumer credit book in Australia.


I think AMEX took out the ANZ book a while ago.


Regardless of anything M&A is going to be required across the sector. When that happens the debt gets transferred and the interest continues. The equity holder get shafted. Then as the business rebuilds over the five or ten years it takes the bond face value increases.


US bank debt is a buy right now. Citi included.


You got to laugh at the stupidity of all those employees taking stock options in lieu of the dollars for a bonus. http://www.sharescene.com/html/emoticons/tongue.gif

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In reply to: TheFerret on Tuesday 25/11/08 02:44pm

G'day ferret


I certainly have empathy with your thoughts. The only trouble is that the "mongrels" mostly acted within the law, or so I understand.


Certainly the management of these "rescued" financials should be sacked, but I guess there is a fiercely strong "old boys" club which looks after its own.




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In reply to: plastic on Tuesday 25/11/08 03:28pm

"US bank debt is a buy right now. Citi included."


You have to be kidding, in order to make such a statement one must know how much debt there is, one must also know what the level of securitizations the particular institution has in place, how many loans that were securitised are currently orphaned, what reserves of the institution have been destroyed due to orphaned loans being either defaulted or settled, this in itself creating further orphaned loans.


The Central banks let alone the particular institution would not have a clue so I don't see much hope of you knowing.

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