Monday, October 01, 2007

No Kidding.... More Off Balance Sheet Vehicles For Citigroup

You really can´t make things up like the stuff you read and hear day in day out from Wall Street.

Es kommen fast täglich Sachen aus der Finanzwelt und besonders von der Wall Street bei denen man sich immer erstmal vergewissern muß ob nicht doch gerade der 1. April ist.

Thanks to Mike Calderon / Over The Edge Cartoons

While Citi teams up with KKR / FT
KKR and Citigroup are understood to have agreed to form an off-balance-sheet vehicle with about $5bn of equity and $10bn of debt to buy impaired loans, which could include some from Citi’s investment bank.

The joint venture brings together the private equity firm responsible for some of the biggest leveraged buyouts in the run-up to the credit crunch and the bank that agreed to finance many of those deals.

The vehicle could allow Citi to sell some leveraged buyout debt, which it has underwritten but is struggling to syndicate, as well as other troubled loans.

> "Could".... LOL! Conflict of interest...?

> "Könnte"....LOL! Interessenskonflikt......?

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Blogger jmf said...

Fed Fails to Restore Creditor Confidence, Pimco Says

Lehman Adds Risk

Lehman, whose fixed-income research team has been top- ranked in Institutional Investor magazine's annual survey for eight straight years, told investors last week to buy more junk bonds, with the caveat that gains may be over by year-end. The firm also has increased its recommendations on investment-grade and emerging-market debt.

``We've increased markedly our exposure to risky assets and we think a lot of the sell-off is over,'' said Joseph Di Censo, a fixed-income strategist at Lehman in New York. ``We will see a rally in the spread sectors that were the most beat up.''

Former Federal Reserve Chairman Alan Greenspan said yesterday that the worst of the global credit slump may be almost over because banks are starting to buy lower-rated assets with longer maturities. .....

1:03 AM  
Blogger jmf said...

Nice rant from M.Panzer

Brain Damage? / Financial Armageddon

2:01 AM  
Blogger jmf said...

Goldman sees enormous unrealized gains at Bank of America

citing "enormous unrealized equity gains." The broker said it estimates Bank of America has unrealized gains in its strategic investment portfolio of around $22.5 billion after tax, representing around 10% of the group's market capitalization and 35% of its tangible book. The gains come from Bank of America's investments in China Construction Bank and Santander Serfin among others and mean the bank has great flexibility to build reserves, charge off underperforming credits and repurchase shares, Goldman said

With one of the biggest credit books in the world they probably will need every single buck....

3:45 AM  
Anonymous Anonymous said...

On CNBC this morning they had someone on who touted some European banks and financials -- the whole sector to some extent, really -- saying they had no exposure to US subprime, the worst of the credit crunch was vorbei, usw. They ask viewers to send in questions via email, so I sent this one in:

How does your guest know that the financials she mentioned have no exposure to US subprime? To this point most institutions have sought to hide their exposure and avoid 'mark to market'. Who would have predicted before, for example, that German banks would be so involved as to require a bailout? It has been shown, contrary to all assurances by analysts and government officials, that subprime was not at all "contained" - indeed, it led directly to the credit crunch that roiled the markets so badly in August. And the crisis at Northern Rock was a direct result of that - i.e. the 're-pricing of risk', or credit tightening, that resulted. Is all of that really in the past? Look at the ARM reset schedule for US loans - we are really only at the beginning of that wave of delinquencies and defaults. Will central bank easing really be able to hold off an asset deflation as that crisis unfolds further? What about the effect on the dollar and on consumer spending in the US?

But they never asked it.

Here is a recent ARM reset graphic from BoA. Note the wave of subprime and jumbo resets right thru 2008.

Yesterday BofA upgraded some homebuilders.


5:29 AM  
Blogger jmf said...

Mahlzeit Eh,

that´s one of the reasons why i have stopped watching CNBC & Co.

Too much nonsense

Nice move in Hong Kong....

5:41 AM  
Blogger Ben Bittrolff said...

Hey, I have a brilliant NEW idea: Lets setup a fancy financial company and issue lots of debt. We then squander the debt by lending to unqaulified people that can't possibly pay it back. BUT we use Level 3 and Level 2 accounting to Mark to Make Belief and Mark To Model. We can than also record the declining value of our own debt (as Bond holders flee in panic) as even more gains. Then we wait for the short bus to pull up and let the Bulltards come in and bid up our shares...

Oh wait, never mind.


9:41 AM  
Anonymous Anonymous said...

The question should be , " what is the alternative ?"

these entities aren't all bad , they are getting way too much negative publicity ... there's a reason to do things this way

12:28 PM  
Blogger James said...


Totally OT but - what is the context of Russ Winter's use of the term "Flucht" ? Google returns links only in German hence my appearence on your blog - you are the only German I know.

NC Jim

1:26 PM  
Blogger jmf said...

Moin Anon,

no question.

The sooner they clean their balance sheets the better.

Japan should be warning enough.

But this combination of distressed debt fund on the one side and distressed debt on the balance sheet gives too much room to "manage" the numbers.

This is not a real "cleaning". Every time they need off balance sheet vehicles to hide or lever things up the endgame is way too often not so good.

Moin James,

"Flucht in die Sachwerte" describes that people are losing confidence in fiat currencies and buying "stuff".

"Flight to hard assets" is maybe the english translation. And with stocks, commodities etc surging it looks like lots of people don´t want to hold $ or other currencies anymore.

They want to play catch up with inflation.

11:42 PM  
Blogger jmf said...

via the

The big indicator will be at what price the first loans will be sold to the new funds.

The worry is definitely taking hold among investors, says the FT, that this is all just a bit of a ruse to flatter the banks’ balance sheets.

1:22 AM  
Blogger jmf said...

Also from the FT link

Now you wouldn’t sell a lot of paper to the fund, that’s asking for liability problems. But small transactions often legitimately go for higher prices than large ones, and a bank could conceivably sell a small participation in a few deals at a not-egregious-if-you-are-retail level above where the market really was (say 95 when the market would probably be 92). Now it would probably be pushing it to stuff your own paper into your own fund, but there are enough banks in the same boat that mutual backscratching isn’t out of the question.

3:27 AM  
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1:43 AM  

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