David Reilly is on fire:

judgment by bankers helped get us into this crisis. They relied too much on borrowed money, lent too freely to shoddy customers and got taken in by their own sophisticated financial models.

So you would think the last thing anyone would want to do is rely more heavily on their judgment in the hope they’ll do better next time.

Unless, that is, you’re a banker. Many believe one way to prevent today’s troubles from recurring would be to give banks more wiggle room over how much money they put aside to cover loans that might go bad. That would let them build up rainy day funds when times are good so they can bolster profit during slumps . . .

Consider that between 2003 and 2007 Citigroup Inc. paid out about $44 billion in dividends and about $22 billion buying back stock. The combined outlay is about four times more than its current market value, and much more than what the government has shelled out to keep the bank afloat.

Remind me again why we are all on the hook to the tune of $300 billion for these idiots?

>

Source:
Sexing Up Books Isn’t the Answer for Banking Woes
David Reilly
Bloomberg, Feb. 19 2009

http://www.bloomberg.com/apps/news?pid=20601039&sid=aoDAkaaW0y9c

Category: Bailouts, Credit, Dividends

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “Citigroup Buybacks & Dividends: $66 Billion Dollars”

  1. greg says:

    Anyone know the current value of the hedge fund that Vikram Bandit sold to Citi?

  2. HCF says:

    > Remind me again why we are all on the hook to the tune of $300 billion for these idiots?

    Perhaps we’re afraid to piss off Prince Alwaleed and the Saudis?

    HCF

  3. mlomker says:

    I know this isn’t a very capitalist thing for me to say, but it might be unwise to allow banks to be public companies. Public companies invariably have a short-term profit focus and that rewards risk taking–something that we generally don’t want from a bank.

    It’s simple human psychology that you will get more of what you reward. We need to stop looking for *people* to blame and start looking at the system and reward structures that we’ve allowed to be created. People are probably the most predictable element in the equation.

  4. “start looking at the system and reward structures that we’ve allowed to be created.”–mlomker

    ml,

    start at the FDIC

  5. Steve Barry says:

    Don’t forget the bonuses paid during that time for rotten decision-making…oh and that 400 Million they are spending on Citi-field.

  6. rob says:

    Comments from anyone about this article? I’ve never read this site before and curious as to its validity and clout. Lots of anxiety after reading it. To the point, I’d sell everything and buy gold if it wasn’t for the IMF poised to unload a lot. http://www.financialsense.com/editorials/engdahl/2009/0218.html

  7. ml,

    seeing the QOTD: “”When the Fed is the bartender everybody drinks until they fall down.” —Paul McCulley”, again, maybe we should go closer to the source and examine, for a change, our irresponsible ‘bartender’..

  8. rob,

    financialsense.com is a great site..

  9. rww says:

    As the banks did to the market, so should the market do to the banks.

  10. wally says:

    “Remind me again why we are all on the hook to the tune of $300 billion for these idiots?”

    Because they bought Congress.

  11. Mannwich says:

    Wow, what else is there to say about C? Time to put them down.

  12. Concerned American says:

    Right on Wally.

  13. murph says:

    Michael Hiltzik at the LA Times is on fire.

    We already own the banks — shouldn’t we run them?
    http://www.latimes.com/business/personalfinance/la-fi-hiltzik19-2009feb19,0,442830.column

  14. ottovbvs says:

    So stock buybacks and dividends are outlawed in the new economic paradigm….. These guys made lots of iffy decisions, but stock buybacks and paying dividends were pretty low on the sin scale…..after all there are dozens of other companies who did the same thing who are now in serious trouble…… But never mind it gives the self righteous and those with 20/20 hindsight plenty to shout about.

  15. HCF says:

    For once, I actually partially agree with ottovbvs =) Stock buybacks and dividends in the 2003-2007 time-frame were pretty typical of financial companies and low on the scale of things I have problems with. In retrospect, it might have been bad decision-making, but certainly not criminal.

    However, why ANY financial company losing gobs of money and receiving TARP should pay ANY dividend right now is downright shameful. C has about 5.45 billion shares outstanding and pays 1 cent/quarter per share. That’s $218M a year going out the door, arguably straight from the taxpayers’ pocket. It’s perfectly ok to be a blood donor, but not WHILE you’re receiving a massive blood transfusion!

    HCF

  16. Mannwich says:

    @otto: Here we go again. I think we have every right to question EVERYTHING Citi, and any other firm that takes billions of taxpayer dollars, does at this point. After all, without the taxpayer they would be done for. It’s called critical thinking. Our citizenry has been asleep at the wheel for far too long and now that they’re waking up, you want them to just move along and not question anything. Again, no disrespect intended, but it smacks of elitism to me.

  17. ottovbvs says:

    Mannwich Says:

    February 19th, 2009 at 10:31 am

    “I think we have every right to question EVERYTHING Citi”

    Why not go the whole hog and appoint political commissars to second guess the bankers decisions…..a bit like those they had in the Soviet Union during WW2…..I’m sorry but as you know I’m not terribly enthusiastic about tribunes of the people…particularly not self appointed ones like Al Sharpton or Bill O’Reilly…..these decisions were taken years ago long before the non elitists were given veto power……but I suppose it’s all of piece…..FDR didn’t know what he was doing……Lincoln should have fired McClellan long before he did…..one could go on….it’s entirely fatuous line of discussion. That’s why legislation is seldom retrospective.

  18. Moss says:

    The system was/is tilted to the ‘investor class’ we hear so much about. Dividends and capital gains are taxed at lower rates. Companies would borrow money, write off the interest expense and buy back shares. The most conservative companies did this during the hysteria. Individuals did it as well. Got loans, at low rates, using stock as collateral. Dividends are then used to pay off the loan. In many cases the dividends paid exceeded the interest rate cost (or cost- of- carry) so they basically had positive float.

  19. Mannwich says:

    @otto: You do a disservice to your argument (once again) with your unnecessary hyperbole and jabs at my argument. I think questioning everything Citi does NOW is not out of line at all, and is, in fact, a base requirement for fixing things and moving forward. You continue to put your implicit trust in the very actors who got us into this mess (yes, Summers played a role in this mess too). I don’t. I certainly don’t take my marching orders from Sharpton, O’Reilly, or anyone else for that matter. Belittle it and try to snuff it out all you want with your elitist ridicule, but I prefer to do my own critical thinking thank you very much. You can place your trust in the elite titans of the universe and see how it all works out for you.

  20. Neal says:

    I actually like the jabs – only because they are well deserved.

    We are just sick and tired of paying for others’ mistakes and missteps.

  21. ottobvs, you are correct that pointing fingers at past actions by Citi, which were legal and not at all unusual in the marketplace at the time, is pointless, and has nothing to do with whether we should be on the hook for $300 b or more to save them.

    What to do next is the only relevant question, and it should turn on a cost-benefit analysis. It is not a morality play. My c/b analysis is that saving Citi and others like it will cost much more in the long run than the meager benefit today of not allowing them to fail. So, we shouldn’t be on the hook for $300b, but not because Citi paid dividends and bought back its own shares before it teetered on insolvency.

  22. Paul Jones says:

    We’re on the hook because of election year politics:

    Bush “sacrificed” his free market principles because he didn’t want to be blamed for the economic destruction of America.

    But if the right wing won’t stand up for rule based and law based economics, the left never will.

  23. Why not go the whole hog and appoint political commissars to second guess the bankers decisions…..a bit like those they had in the Soviet Union during WW2…..

    If they don’t like it, they don’t have to take the money, they can just go bankrupt and liquidate the garbage assets at $0.10 on the dollar.

    Oh wait, that’s what should be happening anyway!!

  24. ottovbvs says:

    Mannwich Says:

    February 19th, 2009 at 11:07 am
    @otto: You do a disservice to your argument (once again) with your unnecessary hyperbole and jabs at my argument

    …..ah I see accusing me of elitism wasn’t hyperbole…..unfortunately Mannwich if I may say so your completely over the top policy prescriptions as in:

    “I think we have every right to question EVERYTHING Citi”

    …lay themselves open to ridicule and I will fess up to something of a weakness for calling out the ridiculous. I find Curmudgeons take on this matter much more coherent even if I don’t agree with it. They can’t be allowed to fail, not even the nationalizers are proposing to let them fail. As to nationalization, it may end up there but I think Geithner is right to approach this with the greatest caution.

  25. texasradio says:

    @Rob

    In my view, there are two “most likely” scenarios for gold:

    1. Gold trades up after the deflationary asset spiral is bottomed.
    2. Gold trades up during the deflationary asset spiral and either trades flat or up after the collapse. This is what I believe is occurring.

    Central banks are basically government owned and operated (and the IMF). As such, they do dumb things consistently, like selling at the bottom and buying at the top. For example, the Bank of England auctioned off a lot of gold reserves. The auctioning ceased when they found out that a large buyer was Goldfields Ltd. Turns out that it was cheaper to buy gold from the Bank of England than it was to mine it. That was the bottom.

    I think the IMF sells all their gold reserves and that it will be bullish for gold. Could it have a short term impact on the price? Of course, but it’s not guaranteed since they will most likely try to do a private placement with, say, the central bank of China. The time to be concerned is when the major western central banks (and the IMF) start buying gold in an attempt to re-establish fiscal credibility. They will likely both buy at the top and be the market’s fool, same as what happened at the bottom.

  26. ottovbvs says:

    Paul Jones Says:

    February 19th, 2009 at 11:22 am

    But if the right wing won’t stand up for rule based and law based economics, the left never will.

    …….As many have pointed out there are no atheists in foxholes or Friedmanites in govt when the economy is collapsing.

    “Bush “sacrificed” his free market principles because he didn’t want to be blamed for the economic destruction of America.”

    ……At least you recognize this was the likely outcome unless he did sacrifice them.

  27. Mannwich says:

    @otto: I’ve been pounding the nationalization drum for months now. Not saying we should allow them to simply fail like we did with Lehman but I think nationalization of some of these firms is necessary and is coming once it becomes politically palatable. We’re obviously getting there based on the recent shift in tone about this topic by the powers that be. I’m fine with Geithner being cautious and taking his time (in fact, I prefer that to rushing into anything that ultimately doesn’t work) but remain skeptical until I see what is ultimately done. I hope I’m pleasantly surprised in the end.

  28. call me ahab says:

    @ otto:

    why are you being so defensive over Citi? Maybe if I understood the reasoning for your postion then maybe I could come around to your point of view. Please enlighten me. My bottom line is that Citi took excessive risk in their investments and are “reaping what they sowed”. But . . . hey I am willing to listen. Currently- I have to agree with Manwich. It is only through the largesse of the federal government that Citi is around at all- so I think the government is ultimately in the driver’s seat regarding their destiny.

  29. wally says:

    “These guys made lots of iffy decisions, but stock buybacks and paying dividends were pretty low on the sin scale”

    To make a point here: the execs and employees who took all that money home could now afford to buy out the entire company and take it private – just like the Lehman execs could have easily done. However, they don’t even lift a finger… but they expect comebody else to pony up. What does that tell you about 1. the worth of those banks and 2. the attitude of the execs?

  30. wunsacon says:

    Mark,

    In the run-up to the 1929 bust, what role did the FDIC (or a predecessor) play?

  31. wunsa-

    as I stated, maybe we should be looking at the FedRes at the beginning of our inquiry..

    though, post-33, the existance of the FDIC has served to neuter, over time, Depositor’s interest in the “Soundness” of their ‘Banks’–a, very, sad turn in affairs that has continued to suck the sap out of the Polity, in, ever, compounding ways..

    but, really, the point is moot, as long as the Constitution is only exercised in Moot Court..
    http://www.thefreedictionary.com/moot
    http://www.icerocket.com/search?tab=web&fr=h&q=moot+court

  32. wunsacon says:

    Well, we also had gold and silver notes back in the 1920′s, too. Not just fiat currency. But, perhaps the mere existence of fiat currency leads eventually (when times are good) to people treating it as equivalent, so that we end up with boom/bust cycles anyway.

    Should we never allow fiat currency, so that there’s always a limit to credit growth?

  33. Darmah says:

    I kinda thought the whole point for the wonderful Bush tax cuts was to stimulate investment and make the economy grow. Unfortunately the investment took place overseas, like in China, meanwhile they were hollowing out the manufacturing base of this country. Or the money was “invested” in the shares of their own company ’cause that was such a good buy. Which is pretty much horseshit since mostly it was just manipulation of eps so execs could make their bonus targets. And yes I’m speaking about companies in addition to banks. “Investment” was in unproductive crap like military spending or housing or “resource balancing.” What a disgusting orgy of greed the past few years.

  34. ottovbvs says:

    call me ahab Says:

    February 19th, 2009 at 12:13 pm

    why are you being so defensive over Citi?

    ……Not being defensive, just pointing out that excoriating the management of Citi for making perfectly reasonable decisions that were made by dozens of other companies in the context of the times is totally fatuous. I’m sure if they’d suspended the dividend in 2004 because they thought the bank would be insolvent in 2009, it would have received universal applause. Context, of course, is not a popular concept around here.

    “It is only through the largesse of the federal government that Citi is around at all- so I think the government is ultimately in the driver’s seat regarding their destiny.”

    …..Of course they are, did I say otherwise. Nationalisation is however fraught with risk even if Mannwich can’t see it. One self contradictory aspect of it find instructive is that the very people who constantly rail against the incompetence and corruption of our politicians, Geithner, Summers, etc etc are quite happy to hand the management of the banks over to them. But then irony isn’t a very popular concept around here either is it?

  35. ottovbvs says:

    Darmah Says:

    February 19th, 2009 at 1:44 pm

    “I kinda thought the whole point for the wonderful Bush tax cuts was to stimulate investment and make the economy grow.”

    This little Bush admin con trick belongs with the law they passed allowing companies to repatriate overseas profit balances without a tax penalty that was supposed to encourage US investment and job creation. The profits came back…… the investment and jobs didn’t. Unfortunately most of the folks out there saying Keynesian economics are bunk still believe supply side economics are the way out of our problem.

  36. usphoenix says:

    @wally: Boy did you nail it perfectly. Thank you.

    They could buy it, take it back and make it work. Except…….. It would be their money on the line. Not OPM. And that’s what makes WS tick.

  37. trackerman says:

    @wally: Great point!

  38. andrelee40@hotmail.com says:

    “…idiots…?”. Nah. They who controlled the reins knew exactly what they were doing. The idiots are the couple o’ hundred million or so folks in the states who don’t know how these things work, aren’t interested in how these things work, nor demand to know how these things work and are then surprised when these things don’t work….in their favor, that is.

  39. Graphite says:

    Remind me again why we are all on the hook to the tune of $300 billion for these idiots?

    Ummm, because we decided that moral hazard didn’t matter and “the free market’s ship had sailed”?

  40. wunsa-,

    but, thanks to 3/9/33 we never let the “Market” rectify the errors caused by the profligate ‘Bankers’..

    though, yes, LSS: Fiat currency is unConstitution for, primarily, that Reason..

    our, 18th C., Founders were, hardly, backwoods Rubes, they well, and truly, understood the evils of Paper.

    see the cat on the U$D 2 Note, as, but, one example..

  41. flipspiceland says:

    Something systemically wrong in a society that uses up enormous amounts of its most powerful brains producing nothing. Nothing, that is, but pieces of paper and math models that can send our entire world into bankruptcy.

    Incentives are the usual suspects in most all human activity. Remove the incenctives or change them.