Citibank! Idiots!

[430752]

So we've all the heard the news by now that Citigroup needs an immediate infusion of cash to avoid going down the toilet. You and me and out neighbors are going to provide them that cash and also assume 90% of any losses over $29 billion, sky's the limit thereafter. Not good my friends.

But, that's not my rant. My rant is:wasn't this the same Citigroup that was going to buy and thus "bailout" Wachovia (with govt help)? And when Wells Fargo made a better, all-private deal, Citigroup cried foul and sued or threatened to sue Wells?

My question is are they that clueless? I mean, just about a month ago they were looking to swallow up a large bank and assume its losses, today they themselves need rescuing! What, they didn't see it coming? There is no way you can not know that in month you might need desparate, live saving help adn thus shouldn't go on a spending spree. So, in my book, our banking titans are either completely, 100% clueless or they don't give a rat's heiney and are completely, 100% reckless. I'm just not sure which is worse.

We're in for a very, very long ride I'm afraid.

[Uncle Cracker]

My BIL got in over his head with CitiBank, and they really turned the screws on him... Spoke quite frankly that they didn't care if he lost his house or his marriage over it. I think maybe they need a taste of their own medicine...

[docrowan]

Apparently word is out that our elected officials are shoveling out taxpayer dollars to any very large corporation, no questions asked as long as you don't fly down in your company jet.

[Adele]

I think I am going to stop paying everyone I owe. It seems to work for the big companies. Heck I think I will call congress and ask them to "bail me out"

Adele

[pierhogunn]

Why Citi needed wachovia

The reason that citi needed wachovia was to have a deposit base to use as collateral to avoid this kind of collapse. This is the reason that they cried foul when Wells made a better offer.

Citi Bank knew that without the promise of wachovia's deposits to leverage it was simply a matter of time, and a short one at that, before they would be up that creek without a paddle

[cgallery]

We're in for a very, very long ride I'm afraid.

I'm not surprised at all. Corporations are largely run by executives with MBA's. The MBA is an effort to create intelligent, thoughtful leaders through education. Corporations hire them as executives because it is what corporations do.

But, tell me the name of any one intelligent, thoughtful leader that wasn't born that way.

You sure as heck don't make 'em in business schools.

[LCHIEN]

citibanks offer for Wachovia was like 10 cents on the dollar... a bargain that gave them more deposit base. THey must have some sweetheart deal with the govt. because it was Treasury dept. brokered and there was no competitive bidding until Wells Fargo showed up with a much better offer...

[430752]

The reason that citi needed wachovia was to have a deposit base to use as collateral to avoid this kind of collapse. This is the reason that they cried foul when Wells made a better offer.

Citi Bank knew that without the promise of wachovia's deposits to leverage it was simply a matter of time, and a short one at that, before they would be up that creek without a paddle

wait, so lemme get this straight, they knew they were in deep doodoo so instead of fessing up and paying the piper, they concocted a scheme where'd they leverage a buyout of a large bank simply in order to garner a larger asset against which to charge debt?! Kinda like if my house is getting foreclosed I buy another house and claim my asset base can absorb the loss of one by taking ever greater debt through a mortgage on the second to pay for the first? and now both are at even greater risk and the poor schmoe depositor risks his innocently deposited savings because some morons screwed not only their deposit base but now mine? And this passes for prudent behavior? It wouldn't fly for me or you, but its okay for them? Geez, what a world.

[herb fellows]

Repeat after me:

Big guy has champagne, little guy gets screwed.

Big guy has champagne, little guy gets screwed.

If you say it enough, you get used to it. it numbs your mind enough so that you don't want to go choke the living s*** out of these b**t***S!

At least, that's what they're counting on.

[ironhat]

Like the bust of the 20's/ 30's the more the government bails the lower in the water the financial ship floats or sinks, depending on how you want to word it. I see people going to the mattresses for security - stuffing them with their money, that is, because you just can't count on the banking system any more.

[JR]

... they concocted a scheme where'd they leverage a buyout of a large bank simply in order to garner a larger asset against which to charge debt?!

Sorta. More like they took a loan based on the fact that they had $X of assets. If their assets at any time are revalued at less than $X, they would have to pay a higher rate. If their assets go too low, they would have to pay the loan immediately.

"Mark to market" accounting requirements demand that Citi revalue their assets to current market value. If those assets are mortgages, they have to be discounted to indicate current market values, not the value if repaid in full.

C's stock (I don't know offhand how much of their asset base is dependant their stock value) has gone down from >$20 at the time of the Wachovia thing, to close at $3.77 on Friday. The government is getting a return of 8% on their $20B investment in Citi, plus $7B payable in prefered stock. Additionally the government has the right to acquire common stock at $10.61 per share - if the price goes back to $20 this will look like a nice deal.

The additional risk to the government is the guarantee of $250B of a $306B portfolio of Citi debt. If all that debt turns worthless, the government loses $250B. Citi is on the hook for the first $29B of losses to that portfolio, then $10 thereafter.

Obviously, Citi is favored by the government. Their continued survival is virtually guaranteed by the USA. That would make the government's investment likely to have a strong return. But who really knows at this point?

JR

[docrowan]

Okay, I have a question regarding stock prices. Clearly the stock price going up and down indicates the shareholder's confidence in the company. But in reality it's a matter of a shareholder who owns X number of shares of this company and selling them to someone else for Y price. The company is never involved in the transaction.

Unless the company wants to issue NEW shares (to raise more capital) or buy back OLD shares (in order to retire them and increase remaining shareholder value) for the short term what difference does it make to the company what price the outstanding shares are trading at? The shareholders can't force the company to buy back their shares, or even pay a dividend.

[jonmulzer]

There are loans out there that are guaranteed by stock. If the stock drops below a certain price you get a margin call. You are responsible for the difference between actual stock value and guarantted stock value, called the margin. So if your loans are based upon 1 million shares at $100 a share and the stock price drops down to $90 a share you would have to come up with $10 million dollars to cover the margin so the loans are still collateralized. If you cannot cover the margin you could be considered in default and then the bank takes the stock that guarantees the loan and the company loses voting rights equal to the number of shares necessary to cover the balance of the loan and then you lose all your power.

Simple enough eh?

[cgallery]

And when you're a bank and people associate your stock price with the health of your institution (rightly or wrongly), you don't really want the stock to trade for pennies. It can translate into a run on your bank.

Oh, and you're ultimately there to make a return for investors. Investors make their return through increases in stock price increases. When the stock goes to zero, you get angry investors.

[chopnhack]

Greed and corruption have brought us to our knees.....its playing out better than the terrorist could have imagined! I can only imagine them laughing somewhere. If you think I am crazy look into the facts, politics aside - just facts:

Obama's link to the sub-prime meltdown that puts us to where we are today. (his campaign advisor, Raines was the former disgraced CEO and Chair of Fannie Mae). Misappropriations through Acorn and Fannie/Freddie to get more minorities into homes.

Bush's administration allowing the ridiculous leveraging of banks funds by firms reclassifying themselves as investment banks thereby circumventing certain funding ratios. Leading to outrageously leveraged risky investments.

Clinton administration pushing for more minorities becoming homeowners - basically at any expense. This was the start of the whole mess IMHO - forcing Fannie and Freddie (and thereby the banks that underwrite through these giants) to use food stamps as an acceptable source of income on a mortgage application!!!! If you don't have an income, how can you use a borrowed income to borrow more money!!! Ridiculous. Home ownership is a right, affirmative action has no place - its simple mathematics, make the money = spend the money.
GRRRRRRRRR.