Monday, October 01, 2007

Fineprint Citigroup Warning

This story fits perfect with the latest news from the UBS (and more to come probably on a weekly basis...). Make sure you also read this from Minyanville A Look Inside Citigroup's Writedowns & No Kidding.... More Off Balance Sheet Vehicles For Citigroup . A must read!

Das ganze paßt hervorragend zu den heutigen Neuigkeiten die aus der Schweiz von der UBS (und zukünftig auf Wochenbasis von rund um den Globus) kommen. Zudem solltet Ihr Euch das A Look Inside Citigroup's Writedowns via Minyanville & No Kidding.... More Off Balance Sheet Vehicles For Citigroup nicht entgehen lassen.

Quote Prince CEO Citigroup just a few weeks ago The $1 Billion Break Up Fee & An Ignorant And Deaf CEO

Dieses Zitat vom CEO der Citigroup ist gerade einige Wochen alt.......

"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".
Not a good sign if the CEO of the world biggest bank need signs like this.......

Kein gutes Zeichen wenn der CEO der weltgrößten Bank anscheinend solch deutliche Hinweisschilder benötigt.....


FT Citi takes big hits across the board: 60 per cent drop in Q3 income That huge loss has been realised from two hits from LBO debt and subprime mortgages. throughout the credit crunch, banks have been quick to point out that they hold few, or no subprime assets. Most casualties so far have thus been victims of contagion. No such luck for Citi.
Instead, there’s just huge amount of LBO debt and subprime mortgage securities stuck on the bank’s balance sheet - making it the most direct casualty of the credit crunch to date. Citi lost $1.4bn on holdings of LBO debts:

Write-downs of approximately $1.4 billion pre-tax, net of underwriting fees, on funded and unfunded highly leveraged finance commitments. These commitments totalled $69 billion at the end of the second quarter, and $57 billion at the end of the third quarter. Write-downs were recorded on all highly leveraged finance commitments where there was value impairment, regardless of the expected funding date.
And Citi are still having difficulty syndicating. As FT Alphaville observed earlier Monday, bank’s are having to brook significant losses on sales where they can make them - so there could be more pain for Citi to come.

As for Citi’s subprime debt, it too is stuck on the bank’s books: “warehoused” for use in future securitizations. Here the bank reports $1.3bn in losses:

Losses of approximately $1.3 billion pre-tax, net of hedges, on the value of sub-prime mortgage-backed securities warehoused for future collateralized debt obligation (”CDO”) securitizations, CDO positions, and leveraged loans warehoused for future collateralized loan obligation (”CLO”) securitizations.
Note that Citi, a touch coy here, hasn’t disclosed the total amount of subprime securities they hold - only the $1.3bn loss on them they’ve realised so far.

But those losses aren’t just coming from toxic debt products. Citi has also lost $600m through their fixed income trading operations because of “market volatility”. And a massive $2.6bn hit has been taken because of an increase in global “credit costs”. The charge was:
Due to continued deterioration in the credit environment, organic portfolio growth, and acquisitions. Approximately one-fourth of the increase in credit costs was due to higher net credit losses and approximately three-fourths was due to higher charges to increase loan loss reserves.
While other banks have been nimble on their feet and hedged their way around big losses, Citi’s results look nothing short of an out and out embarrassment. UBS was quick to direct senior figures towards the job pages and announce changes and cost cutting. Surely heads will also roll at Citi?

We suspect that all that troubling talk of a Citigroup break up to unlock shareholder value could gain ground again - fast.
> Maybe that´s the reason why the stock is up. I have the feeling that there is almost no news bad enough out there to put a positive spin on it. At least i havn´t heard a "Buffet" rumor yet... ;-)
> Wird wohl auch der Grund sein warum die Aktie z.Zt. höher notiert.Es gibt wohl kaum eine Meldung die schlecht genug ist um nicht für einen Spinversuch herhalten zu müssen. Immerhin mußte das letzte Mittel "Buffet" bisher nicht herausgeholt werden..... ;-)

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3 Comments:

Blogger Edgar said...

Boo hoo for Citi. I guess that executive pay package will go down 2%. Waa!

6:53 AM  
Anonymous Anonymous said...

Jan-Martin,

I know you like cartoons--here's a good one:

http://www.stockmania.com/2007_10_01_archive.html

Rick W

8:53 PM  
Blogger jmf said...

Moin Rick,

excellent and probably true ;-)!

9:38 PM  

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