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Bondholder Haircuts at Citigroup: At the End of Q1, the Children’s Hour Ends in Washington

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By Chris Whalen - February 12th, 2009, 9:44AM

“Between the dark and the daylight,
When the night is beginning to lower,
Comes a pause in the day’s occupations,
That is known as the Children’s Hour.”

HW Longfellow

John Crudele gave me a nice plug in the NY Post today

Watching the congressional hearings yesterday, it struck me that the MCs and the bank CEOs are well ahead of the Obama White House and the Treasury when it comes to reality on the large banks.  Fortunately, when the Q1 numbers for the financials come out, the children’s hour in DC will end.

Chew on this for Citigroup citi_copy-of-qer084s

Dec/2008

Revs $106bn

SGA $ 61bn

Provisions $33bn

NCLs $22bn

EBIT -$23bn

So obviously provisions can’t go up any more – unless we shoot a lot more people. Think about NCLs in 2009 3-4x 2008 plus further M2M losses equal to that number.

Remember, C’s efficiency is in the 60s while JPM/BAC are in the low 50% range. Makes a huge difference. Or in other words, the $200bn in additional equity that that Tim Geithner talks about for ALL the banks is just enough for loss absorption Citi in 2009.

Now you know why I keep saying that eventually the numbers will force Obama to let Sheila Bair clean up the mess at C, haircut the bondholders and get on with the sale of much of what we now call Citi.  The markets are going to see the C numbers, the markets will react and Washington will finally be forced to have an adult conversation with the global community as to how much we haircut the bondholders.

– Chris

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Category: BP Cafe.

Comments

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Bondholder Haircuts at Citigroup: At the End of Q1, the Children’s Hour Ends in Washington”

  1. leftback Says:
    February 12th, 2009 at 12:34 pm

    You’re right Chris, we need to grow up and empower a new RTC operation.

    Nationalization, cramdowns and haircuts.
    Perp walks, FBI probes and show trials.

    It’s gonna be a fun couple of years. Got popcorn?

  2. leftback Says:
    February 12th, 2009 at 12:44 pm

    The triage may finally have begun – let’s hope so:

    http://www.calculatedriskblog.com/2009/02/stress-test-almost-100-regulators-at.html

  3. jritzema Says:
    February 12th, 2009 at 3:34 pm

    Sure, haircut the bondholders, after the equity, hybrid and preferred investors (including TARP CPP) go to zero.

  4. roylat Says:
    February 12th, 2009 at 9:51 pm

    I’ve wondered how much government guarantee of depositors would cost.

    Might it justify in part the bailout effort? A quick analysis of the numbers in the Citi financial statement (see http://roylat.com, “Guaranteeing Depositors …) shows that there is almost certainly more than enough to cover all deposits, and certainly more than enough to cover U.S. deposits.

    US deposits (both time and checking) total only $227 billion. Equity plus long-term debt equals $510 billion. There seems no possibility that losses on loan portfolios could be greater than this cushion.

    This analysis just adds to the many other arguments made for restructuring rather than bailing out.

  5. Chris Whalen Says:
    February 13th, 2009 at 9:29 am

    Have of Citi’s liabilities are deposits. Other half are in play. :)

  6. jimmy smith Says:
    February 13th, 2009 at 10:24 am

    Mr. Whalen,

    What is your position on JPM currently? I know you thought they were in trouble and would need to enter receivership. Do you still feel that way? Or did the WaMu purchase save them?

    Thanks!

  7. johnhaskell Says:
    February 13th, 2009 at 10:30 am

    jimmy smith-

    ha ha ha ha ha ha!

    WaMu saved them!

    oh, you’re killing me!

  8. Chris Whalen Says:
    February 13th, 2009 at 10:36 am

    I put em in this order right now: C, BAC, JPM, WFC. At least Dimon bought WaMu after going through a restructuring!

  9. jimmy smith Says:
    February 13th, 2009 at 11:16 am

    Exactly. Now they have a greater % of their assets funded by (very cheap and stable) deposits, vs. having to access the debt markets.

    JPM has been fairly unscathed thus far and expected, by everybody, to inherit the keys to the kingdom. Are the people saying this doing research or just watching the stock price and trying to catch the bottom? I heard on CNBC a manager say he’s buying boat loads of JPM because the market has declared them to be The Winner. Not a lot of research there!

    I think there might be a lot more behind the scenes activity between Dimon and the gov, given JPM’s over-the-counter derivative exchange business. If anything were to happen to that say good by to the global economy. I’m wondering if the gov will therefore protect JPM at any cost, even in secret.

    But, will they have to raise capital due to loan losses coming down the pike, which is going to be costly to current shareholders? Or worse, will they have to be restructured?

    I guess it depends on how conservative their underwriting was during the credit bubble. Goldman reports that they have only a 2% hit to loans (NPA+90PD/Loans) thus far which is low, and successfully avoided a lot of the toxic asset issues. The other wild card is whether the gov will suspend mark-to-market…

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