Jump to content

Citi and BOA gone with the wind?


ThinkerX

Recommended Posts

Ok...I lost track of the old econ thread (sheds a tear) and the global one just don't seem directly relevant here.

Anyhow, the nutjobs are mulling over an article which predicts the complete downfall of both Citi and BOA by...May-ish. Given the way they tend to get a bit over eager, I'd say maybe September-ish or October-ish nyself. The graphs in the first post are certainly alarming enough, in any case.

Time to get the viewpoints of those on this site who profess to be econ savy here:

[url="http://www.doomers.us/forum2/index.php?PHPSESSID=afda24eb6ce3dd9c586573779d824328&topic=39071.0"]http://www.doomers.us/forum2/index.php?PHP...p;topic=39071.0[/url]

A bit from the article quoted in the OP:

[quote]If there’s one thing our readers know, it’s that ChartingStocks.net has made some bold calls in the past which seemed controversial and highly unlikely at the time. Our January 2007 post warned of the coming stock market crash at a time when the market was making new all time highs. In February 2007 we warned about the breakdown of the brokerage stocks and singled out Bear Stearns (Trading at $160), Merrill Lynch (Trading at $87), and Morgan Stanley (Trading at 78). In September 2007, we warned of a selloff in the coming weeks. The market peak and decline began 4 weeks later.

We’re going to make another bold prediction. Bank of America and Citigroup won’t live to see May. The two banks will be nationalized in the coming weeks, and we think that the announcement can come as soon as tomorrow evening (Friday evenings are when major bank announcements and failures occur).

The US government has already committed half a trillion dollars to these two firms which is more than 10 times the amount it would cost to buy and control both companies. The market doesn’t believe that $500 billion is enough to save these companies.[/quote]

A few posts in, one of the ...somewhat more rational and econ knowledgable sorts on that board posts this...gem (?) :

[quote]Naive? I have the Citi interim 2008 numbers and prior year audit numbers in front of me. Total Citi asset footings decreased $242 bn to $1.945 trn in 2008 over 2007. Deposits decreased $52 bn to $774 bn in 2008. Short Term Borrowings decreased$119 bn to $332 bn. The rest was decreased long term borrowings of $67 bn. This is hardly a reaction to a stock price of $2. The funds did flee and predictably they were commercial paper cash outs of $119 bn. Of course FRBNY loans are in these numbers and they ain't telling how much. My guess $100 bn to $150 bn! Pure guess.


OK , I am going to apply the Jeromie Stinky Shit Ballpark test. Citi gross revenues in 2007 yielded 7.065 % on 2007 asset footings. I am applying 2007 yield of 7.065 % to 2008 total asset footings of $1.945 trn. Thus 2008 revenues yielding at the 2007 return would be $137 bn. The actual interim revenues are $106 bn.

Now here is an ultra critical shortfall of $31 bn. Bookable revenues are due to two mainfactors. Revenues are not booked on non performing assets and of course, rate of return has declined, I ignore the other factors since this is a Stinky Shit Test.
Also, give Citi the benefit of the doubt and half the decline in revenues is from non performing assets not having income booked.
Lets say $15 bn. That is $15bn/ 7.065 % X 100 = $212 bn. The mean average non performance would indicate a too high non performing loan amount. It is far more likely that Citi non performing loans are far less than splitting the difference in a stinky shit kind of test.

Since the Citi equity is only $151 bn that means even a 25 % of stinky shit test mean average non performing loan would be $53 bn or over one third their equity.

This bank goes into receivership soon. NO wonder they have disastrous cash flow and needed new equity of $63 bn to have a net positive cash flow for the year of $12 bn.


There must be a raging battle going on over a qualified audit going concern opinion right now with the auditors. Only a massive subsequent event increase in new equity could remove the problem of a going concern qualification. Geithner puts that money in before audit opinion status is released. That or take over the bank. Citi has usually released audited results in the last week of February.[/quote]

Don't know if Iskaral would agree with this guys assessment/reasoning or not.
Link to comment
Share on other sites

[quote name='tzanth' post='1693420' date='Feb 19 2009, 23.37']No clue, but one has to be a bit critical about stuff coming from a site named "doomers."[/quote]
indeed, a self-selecting insanely-biased (to discover and promote the worst possible scenario) group if there ever was one. :)
Link to comment
Share on other sites

[quote name='Triskele' post='1693443' date='Feb 20 2009, 01.37']I owe my bank (US Bank) a few grand in extended credit. They call it a Premier Line. It's not a brutal interest rate but it's kind of like extra credit on your debit card. If all the banks go bottoms up how is this going to affect me? Any chance I get off the hook for what I owe? Any chance they send masked gunmen to my house to demand payment-in-full?[/quote]
Whom ever would buy the bank, would now be owed the money. They might also take your interst rate and make it higher?
Link to comment
Share on other sites

here is an article about "[url="http://mises.org/story/3281#"]The Insolvency of the Fed[/url]." [url="http://mises.org/story/3281#"]http://mises.org/story/3281#[/url].

i read all of it but i wont say i under stod more then half of it, but the worry some conclution where:
[quote]This figure implies an increase of the Fed's leverage from [b]22 to 50[/b]. As we have seen there are large new positions of dubious quality on the Federal Reserve balance sheet. More specifically, should only [b]2%[/b] of the Fed's assets go into default — or if there is a loss in value of [b]2% [/b]— the Fed becomes insolvent.[/quote]

(my bolds)

any one who can desifer all this economic talks and tell me if this looks plasuible, or is it just humbug?
Link to comment
Share on other sites

Hey... I paid off a $7,000 bill to Bank of America last year. I did my part.

Although Citibank offered me a balance transfer a few years back at 0% for the life of the balance... probably [i]not[/i] a wise business move. :lol: Although, I only have $4,500 remaining on it and I'm contemplating paying it off in full just to clear myself of all credit card debt.
Link to comment
Share on other sites

[quote name='tzanth' post='1693420' date='Feb 20 2009, 08.37']No clue, but one has to be a bit critical about stuff coming from a site named "doomers."[/quote]
It's hardly just the "doomers" who're saying this. It looks like there's a [url="http://news.yahoo.com/s/nm/20090220/ts_nm/us_banks_shares"]pretty good chance that these banks will be nationalized[/url] in the near future.
Link to comment
Share on other sites

[quote name='Rhom' post='1693717' date='Feb 20 2009, 10.10']Although Citibank offered me a balance transfer a few years back at 0% for the life of the balance... probably [i]not[/i] a wise business move. :lol:[/quote]

I just did that about 6 months ago. I did 2 balance transfers to the Citi card at 0%, but the 0% was for 12 months instead of the life of the balance. I bet I can get another 0% offer elsewhere down the road, so in about 4 months I'm going to transfer the balance off of that one and continue the cycle until all my debt is gone.
Link to comment
Share on other sites

[quote name='S John' post='1693730' date='Feb 20 2009, 10.16']I just did that about 6 months ago. I did 2 balance transfers to the Citi card at 0%, but the 0% was for 12 months instead of the life of the balance. I bet I can get another 0% offer elsewhere down the road, so in about 4 months I'm going to transfer the balance off of that one and continue the cycle until all my debt is gone.[/quote]

That's basically how I worked it too. If you can couple that with a sincere effort to cut spending, it works quite well.
Link to comment
Share on other sites

[quote name='Lany Cassandra' post='1693738' date='Feb 20 2009, 10.21']If the banks are nationalized, do employees become government employees?[/quote]

While anything is possible, it's unlikely that they'll go on the GS payscale.

More likely is that things will continue as normal for the rank and file drones. Upper executives will get the boot.
Link to comment
Share on other sites

[quote name='KingBread' post='1694043' date='Feb 20 2009, 10.40']One other thing.

While everyone talks about how shareholders will be wiped out in nationalization, it won't happen. The lawsuits with start flying, and we'll see a payout to shareholders a la Bear Stearns.

Your tax dollars at work[/quote]

What are you talking about? Bear Stearns wasn't nationalized, it was sold to JPMorgan Chase.
Link to comment
Share on other sites

[quote name='Altherion' post='1693723' date='Feb 21 2009, 02.12']It's hardly just the "doomers" who're saying this. It looks like there's a [url="http://news.yahoo.com/s/nm/20090220/ts_nm/us_banks_shares"]pretty good chance that these banks will be nationalized[/url] in the near future.[/quote]
Got to love this quote from a citi spokesmen in that article

[quote]Diat added, "We continue to focus and make progress on reducing the assets on our balance sheet,[/quote]
Link to comment
Share on other sites

[quote name='Pax Thien Jolie-Pitt' post='1694050' date='Feb 20 2009, 13.44']What are you talking about? Bear Stearns wasn't nationalized, it was sold to JPMorgan Chase.[/quote]

You're right, it wasn't a nationalization. It was brokered and backstopped by the feds.

The original deal, which was $2/share, jumped to $10/share when shareholders threatened to tie up the deal with lawsuits. We're going to see the same thing with BofA and C. Even if the lawsuit is processed at lightspeed, it's still going to hang up the process, which the government will be desperate to avoid. At this point, what's another couple hundred billion or so?
Link to comment
Share on other sites

[quote name='Chataya de Venoge' post='1694479' date='Feb 21 2009, 01.10']In other musings - [b]where the FU*K is Tim Geithner today[/b]??? I would expect him to be FRONT AND CENTER denying "rumors" of bank nationalization. Since he's not, that only means that he has no credible deniability, and we should all watch CNBC on Sunday night for the latest episode in the Financial Crisis, which is the nationalization of Citi and B of A.[/quote]
Geithner wasn't there, but the White House did more or less deny the rumors (the key words in that statement being "more or less"):
[quote]"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," White House press secretary Robert Gibbs said when asked about nationalizing the banks.
...
Gibbs was pressed for more details on his answer — specifically whether Obama would not nationalize banks. He said it was hard for him to be any clearer.

When a reporter suggested Gibbs could do that by saying point bank that Obama would never nationalize banks, Gibbs would not make that statement, but emphasized: "I think I was very clear about the system that this country has and will continue to have."[/quote]
[url="http://news.yahoo.com/s/ap/obama_banks"]http://news.yahoo.com/s/ap/obama_banks[/url]
Link to comment
Share on other sites

The Government doesn't nationalize they just seize the troubled bank then sell it to some other poor fool.

Also the government has said it wouldn't let citi and boa go under

well that's what cnn said today anyway
Link to comment
Share on other sites

[quote name='ThinkerX' post='1693396' date='Feb 20 2009, 01.43']Don't know if Iskaral would agree with this guys assessment/reasoning or not.[/quote]

Hey ThinkerX, we've missed your creative pessimism.

That analysis leans on a couple of heroic assumptions to infer the level of defaults that Citi might face. But that doesn't mean that these highly leveraged banks can't or won't have their meagre equity overwhelmed by losses on the crappy mortgages they are holding. Non-agency mortgages are still untouchable.

Nationalization is a real risk. Banks need confidence to function, and that's in short supply. Investors will buy their debt because they think the govt will stand behind it, but no-one seems to want to buy their stock. The banks need to recapitalize and boost their equity to reduce the leverage, but they can't do that if no-one will buy new stock. The mortgage losses will eat away at what equity they have left and the govt may need to step in and provide the equity. Then they are effectively nationalized.

I think Citi and BofA are both too big now to be sold to anyone else, so the govt would probably prop them up (perhaps through the Fed) and keep them running. It's a bit of a guess how they might change management. Fannie and Freddie are our best guide, but it's not as if the govt has been very consistent about this.
Link to comment
Share on other sites

[quote]Hey ThinkerX, we've missed your creative pessimism.[/quote]

Oh..I've been watching...and even made a couple of efforts to bring the old thread back to life.

[quote]That analysis leans on a couple of heroic assumptions to infer the level of defaults that Citi might face. But that doesn't mean that these highly leveraged banks can't or won't have their meagre equity overwhelmed by losses on the crappy mortgages they are holding. Non-agency mortgages are still untouchable.[/quote]

Is this a sort of backhanded quasi agreement between Iskaral and the ...nutjob quasi-economist... I detect here? I also note the 'still' qualifier.

As to nationalization...the nutjobs are starting to all but foam at the mouth over this prospect. Some of them are claiming a 'FDIC Friday' as possible for BOA and Citi within the next week or two now.

I also remember how Paulson went from preaching about 'Moral Hazard' with the Bear Stearns bailout this time last year to demanding huge government infusions with no strings attached less than six months later. (ok, I watched the PBS special the other night). Given that kind of turnaround for a dedicated 'free marketeer' then some sort of nationalization scheme for BOA and Citi seems at least possible. Even Jubak over at MSN is speculating about this as an option for banks that fail the 'stress test', though he didn't mention these two.

One other bit to ponder...Yes, BOA and Citi, as they are, do seem to be too big and likely filled with too many toxic boobytraps for anybody to swallow in one piece...but suppose they were forcibly broken up? Would that not make the pieces more digestable? I would point out that the government has broken up large companies in the past.
Link to comment
Share on other sites

[quote name='ThinkerX' post='1694699' date='Feb 21 2009, 00.12']Oh..I've been watching...and even made a couple of efforts to bring the old thread back to life.



Is this a sort of backhanded quasi agreement between Iskaral and the ...nutjob quasi-economist... I detect here? I also note the 'still' qualifier.

As to nationalization...the nutjobs are starting to all but foam at the mouth over this prospect. Some of them are claiming a 'FDIC Friday' as possible for BOA and Citi within the next week or two now.

I also remember how Paulson went from preaching about 'Moral Hazard' with the Bear Stearns bailout this time last year to demanding huge government infusions with no strings attached less than six months later. (ok, I watched the PBS special the other night). Given that kind of turnaround for a dedicated 'free marketeer' then some sort of nationalization scheme for BOA and Citi seems at least possible. Even Jubak over at MSN is speculating about this as an option for banks that fail the 'stress test', though he didn't mention these two.

One other bit to ponder...Yes, BOA and Citi, as they are, do seem to be too big and likely filled with too many toxic boobytraps for anybody to swallow in one piece...but suppose they were forcibly broken up? Would that not make the pieces more digestable? I would point out that the government has broken up large companies in the past.[/quote]

Paulson let Lehman go under to remind everyone about moral hazard, and that really bit him in the ass. The fear and loathing among investors was definitely made a lot worse by Lehman. It made everyone skittish. After that they got real cautious about any more outright bank failures.

I already suggested that these super banks will be broken up a few years down the road. I don't see it happening yet. Consolidated banks are easier for the govt to wield control during this period. I do think there is a chance that bank holding companies will be pushed to be banks only and spin-off their other operations. We had to save all these banks because they are our banks, but their losses stemmed from their risky investing on their own behalf. If they had been separate all along we could have let the risky investment piece (basically like a hedge fund) go bust, and the critical. boring banking infrastructure would have been ok.
Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

Guest
This topic is now closed to further replies.
×
×
  • Create New...