Posts filed under “Finance”
The Bailout of Citigroup moves forward (Is this book ever going to be finished?):
“Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.
In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for [$27 billion of] preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.”
The US is guaranteeing $306 billion on bad investments (So much for Capitalism without failure). For Citi, its a great deal — but its a terrible one for taxpayers.
The dividend payment has been restricted to one cent per quarter for 3 years. Can someone explain why even a penny is allowed?
Where is the “Protection” for the taxpayers? Where are the clawbacks? How about going after the idiots that bought a third of a trillion dollars worth of junk, and then got paid large on it? Where is the sense of outrage and justice?
At what point do taxpayers demand that the people responsible for creating this mess must pay their pound of flesh?
Citigroup Gets Government Guarantees on $306 Billion of Assets
Bloomberg, Nov. 24 2008
U.S. Approves Plan to Help Citigroup Weather Losses
NYT, November 23, 2008
U.S. Agrees to Rescue Struggling Citigroup
Plan Injects $20 Billion in Fresh Capital, Guarantees $306 Billion in Toxic Assets
DAVID ENRICH, CARRICK MOLLENKAMP, MATTHIAS RIEKER, DAMIAN PALETTA and JON HILSENRATH WSJ, NOVEMBER 24, 2008
You MUST check out the BP Café ! Today, we had excellent posts from Jim Welsh, Marion Maneker, Jack McHugh, and author Vitaliy N. Katsenelson. Yesterday, it was Michael Panzner and Chris Whalen. The highlight of Wednesday morning was the monthly newsletter of Paul Brodsky & Lee Quaintance, which was mentioned in Alan Abelson’s column…Read More
There is a long-but-worth it article (The End) in Portfolio by Michael Lewis, who traces the arc from Liar’s Poker to the End of Wall Street. Before you turn in fear of yet another Magazine Cover Indicator, be aware of one thing: The prostrate bull on the cover of the magazine does not represent,a s…Read More
Chris Whalen runs Institutional Risk Analytics.
The past several months have been a blur of activity. On the
eve of Veteran’s Day, when Americans remember those who have served and have
died to protect our freedom and our way of life, let’s take stock of where we
Following the takeover of Pasadena, CA-based IndyMac Bank in July, IRA launched our IRA Bank Cart (“How’s My Bank?”) product to help provide consumers with descriptive analytics on bank safety and soundness. We actually credit CBS’s Bill Whitaker for planting the seed. He interviewed us about four months ago and asked IRA CEO Dennis Santiago what to tell Mr. and Mrs. America about what’s actually happening inside their banks. We had to admit that around the time of that interview, the Do-It-Yourself solution was for individuals to learn to become better analysts at interpreting raw FDIC Call Reports, a skill even professionals on Wall Street were struggling with. With the failure of IndyMac, we got the message loud and clear that the non-analyst
world needed better.
So our team in Torrance set to work assembling an affordable online report, via The IRA Bank Cart, that provides all customers of banks as much if not better information on the fundamental stresses affecting U.S. banking institutions than most financial professionals possess. Because most people can and do deposit money in all types of banks, we chose not to limit our coverage to just the largest publicly traded banks that the media and Wall Street follow. Instead we created a comprehensive analytical product covering the entire federally-insured bank population.
As part of the IRA Bank Cart tool, IRA also introduced our Bank Stress Index that measures five life critical aspects of the business of banking-earnings, capital, efficiency, losses and lending commitments. To build this index, we created an explicit census of US banks by calculating actual measures for every FDIC-insured unit for every quarter going back every year to December 31, 1995. Americans deserve no lesser diligence.
We combine these individual measures into an overall measure of stress – a ratings system in effect — for the entire US banking industry. The Bank Stress Index represents yet another distillation of the FDIC data by IRA and let’s all bank customers compare the relative safety and soundness of every active FDIC Unit Certificate Holder
and the bank-only portions of all the Bank Holding Companies submitting periodic
reports to U.S. banking regulators.
Corporations Get into the Act
In the two months since the Bank Stress Index product was introduced, a new need emerged, namely serving the cash management activities of corporate CFO’s and Treasurers. It actually first began when the IRA Bank Cart product was launched. Worried representatives of church groups and 501(c3) non-profit organizations actually came to call our offices in CA. These risk-averse investors were looking to reduce the deposit risk exposures for their treasury funds in the $1MM to $2MM range and were of a mind to spread deposits from 100% in a single institution to typically 20% to 34% per institution.
Remember, we did not have any retail customers prior to May of this year. Now we have thousands.
Front page article in the Washington Post today, calling attention to a highly questionable aspect of the $750 billion bailout plan: A Quiet Windfall For U.S. Banks. We learn from WaPo that the Treasury Department slipped through a $140 billion tax windfall to US banks — in theory repealing 1986 legislation, passed by Congress and…Read More