Citigroup reaches aid deal with government

Northern Boy · 02-27-2009, 05:05 PM

WASHINGTON – The U.S. government will exchange up to $25 billion in emergency bailout money it provided Citigroup Inc. for as much as a 36 percent equity stake in the struggling bank, greatly increasing the risks to taxpayers as voter unhappiness about the broader bailout program rises.
The deal announced Friday by the company and the Treasury Department represents the third rescue attempt for Citigroup in the past five months. It's contingent on private investors agreeing to a similar swap.
The plan comes one day after the Obama administration laid the groundwork in its first budget request for greatly increasing the size of the $700 billion bailout program that Congress passed in October. Administration officials said no decisions had been made yet but suggested the size of the effort could be expanded by as much as another $750 billion.

Please click the link to view the rest of the story

http://news.yahoo.com/s/ap/20090227/...tigroup_rescue

NorthernSanctuary · 02-27-2009, 11:34 PM

Citigroup: World’s Worst Investment to Get Even Worse
By Barry Ritholtz - February 27th, 2009, 6:29AM
Losers double down.

That’s the classic trading rule which the USA is about to violate in an enormous way. According to trading maven Dennis Gartman, one should “never, ever, ever, under any circumstance, add to a losing position.”

And yet that is what we are about to do.

To review: Former Treasury Secretary Hank Paulson made a terrible investment on behalf of the taxpayers by purchasing a 7.8% stake in Citigroup (C) for an initial $25 billion dollars. He further put the US on the hook by guaranteeing against 90% of future losses on $301 billion in assets. Subsequently, we (the taxpayers) injected another $20 billion dollars.

At the time, Citigroup had a market cap of about ~$50 billion dollars. Today, its worth ~$13 billion.

So for about 100% of the market value of Citi, plus insurance guarantees worth of as much as 500% of its value (~$275 billion), we got less than 1/10 of a company that in total was worth 1/5 of our investment.

Pretty good deal, eh?

That $45 billion dollar stake now has a market value of just over a billion.

And, its about to get even worse.

Rather than do what is the FDIC-mandated-by-law thing, we will instead convert the nearly worthless common into preferred shares. The taxpayers stake will rise to near 40% of Citigroup.

NYT:

“Under the terms of the deal, the Treasury Department has agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock. It will convert its stake to the extent that Citigroup can persuade private investors, including several big foreign government investment funds, to do so alongside the government, two people close to the deal said.”

What does this do for us? Well, the higher investment stake creates an enormous incentive for John Q. Public to continue to pour money into Citi, regardless of valuation. The inept banking giant then has access to infinite amount of capital, courtesy of you, the 1040 filers.

Its just another example of why these insolvent banks should be nationalized, or for you squeemish free marketers, FDIC mandated, pre-packaged Chapter 11, government funded reorganization.

If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finsh marginally ahead of George W. Bush on the list of worst presidents.

This is not change we an believe in . . .

http://www.ritholtz.com/blog/2009/02...-to-get-worse/

oceanblue · 04-17-2009, 11:17 AM

Citigroup’s $1.6 Billion Profit Exceeds Estimates

By Bradley Keoun

April 17 (Bloomberg) -- Citigroup Inc., the U.S. bank propped up by $45 billion in government bailout funds, ended a five-quarter losing streak by posting a $1.6 billion profit on gains from an accounting rule that helps companies in distress.

Profit compared with a net loss of $5.11 billion, or 34 cents, a year earlier, the New York-based bank said in a statement today. The bank posted a loss per share of 18 cents because of payment of preferred dividends. The average estimate of 13 analysts surveyed by Bloomberg was a loss of 32 cents.

Citigroup investors hadn’t seen a profit since before Chief Executive Officer Vikram Pandit took over in 2007. While the bank cut compensation costs and other expenses, it couldn’t halt rising delinquencies on home and credit-card loans.

“It’s very hard for me to foresee that one quarterly earnings report, or one announcement by Vikram Pandit that they are more profitable than they’ve been since the third quarter of ‘07, means all past things are forgiven,” said Douglas Ciocca, a portfolio manager at Renaissance Financial Corp. in Leawood, Kansas. “There has to be demonstration of traction.”

Citigroup posted a $2.5 billion gain because of an accounting change adopted in 2007. Under the rule, companies are allowed to record any declines in the market value of their own debt as an unrealized gain.

Accounting Changes

The rule reflects the possibility that a company could buy back its own debt at a discount, which under traditional accounting methods would result in a profit. Critics say a company in distress is unlikely to realize the gains, and would have to reverse them eventually if it recovers.

Such reversals probably contributed to a first-quarter loss at New York-based Morgan Stanley, the Wall Street Journal reported April 8.

Citigroup, one of 19 U.S. banks gearing up for the release of “stress tests” run by the Federal Reserve, has quadrupled on the New York Stock Exchange since falling to an all-time low of $1.02 on March 5, in the wake of the company’s announcement that as much as $52.5 billion of preferred stock would be exchanged for common shares to bolster the bank’s equity base.

Under that plan, as much as $25 billion of the government’s investment in the bank will be converted into regular shares, giving it a 36 percent voting stake. Citigroup’s tangible common equity -- a cushion against losses that many investors and analysts study -- will increase to $81 billion from about $30 billion, the bank says. Existing shareholders will be left with about a fourth of their original stakes.

U.S. Support

The government support and additional capital probably are enough “for now” to spare existing shareholders from being wiped out completely, David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, wrote in an April 9 note to investors.

“For prospective new investors, it may be too early to dive in, given continued high-risk exposures that may well require more dilutive actions,” Trone wrote.

The stock closed at $4.01 yesterday. At its peak in late 2006, Citigroup stock was worth $56.41, for a market value of $277 billion. At the current price, the market value stands at about $22 billion.

In November, Pandit, 52, pledged to cut 52,000 jobs from the company’s 352,000-employee workforce, including 26,000 through business divestitures.

In January Pandit reorganized Citigroup, tagging the CitiFinancial consumer-finance and Primerica insurance units for eventual disposal and putting them into a separate division, Citi Holdings, with other businesses deemed “non-core.” The move, he said, would help investors focus on the earnings power of the company’s “core” retail, corporate and investment- banking businesses.

More Writedowns

He also shifted some of Citigroup’s distressed trading securities into a long-term “held-to-maturity” investment status, sheltering them from further writedowns while betting the debt instruments will eventually pay off.

The bank still faces speculation about its survival prospects, as reflected in the elevated prices for its credit- default swaps, a type of instrument that investors use to insure against a debt default.

Citigroup’s credit-default swaps as of yesterday were trading at 557, up from 193 at the end of last year. By comparison, rival New York-based bank JPMorgan Chase & Co.’s swaps are trading at 174. Lehman Brothers Holdings Inc.’s swaps were at 322 a week before the U.S. securities firm filed for bankruptcy last September.

Retaining top employees may be a challenge for Pandit, Oppenheimer & Co. analyst Chris Kotowski wrote in an April 8 report.

Stock Dilution

“With Citi’s stock permanently diluted and the company deeply dependent on government assistance, we think it is among the most vulnerable to a flight of revenue-producing talent,” Kotowski wrote.

The receipt of taxpayer money has forced Pandit to endure congressional scrutiny of line-item expenses, including a $10 million executive-suite renovation and a 20-year, $400 million sponsorship of the New York Mets’ stadium in the New York City borough of Queens.

He vowed to cut his salary to $1 until the bank returns to profitability.

The earnings report follows earnings announcements by U.S. banks whose results have surpassed analysts’ forecasts.

Goldman Sachs Group Inc. on March 13 reported better-than- expected earnings as a surge in trading revenue outweighed asset writedowns. Wells Fargo & Co., the second-biggest U.S. home lender, said last week it had about $3 billion in first-quarter net income, up from $2 billion a year earlier. Profit of about 55 cents a share was more than double the average estimate of analysts in a Bloomberg survey.

http://www.bloomberg.com/apps/news?p...H40&refer=home

02-27-2009, 05:05 PM	#1
Northern Boy Avalon Senior Member Join Date: Oct 2008 Location: On this Rock Posts: 1,390	Citigroup reaches aid deal with government WASHINGTON – The U.S. government will exchange up to $25 billion in emergency bailout money it provided Citigroup Inc. for as much as a 36 percent equity stake in the struggling bank, greatly increasing the risks to taxpayers as voter unhappiness about the broader bailout program rises. The deal announced Friday by the company and the Treasury Department represents the third rescue attempt for Citigroup in the past five months. It's contingent on private investors agreeing to a similar swap. The plan comes one day after the Obama administration laid the groundwork in its first budget request for greatly increasing the size of the $700 billion bailout program that Congress passed in October. Administration officials said no decisions had been made yet but suggested the size of the effort could be expanded by as much as another $750 billion. Please click the link to view the rest of the story http://news.yahoo.com/s/ap/20090227/...tigroup_rescue

02-27-2009, 11:34 PM	#2
NorthernSanctuary Avalon Senior Member Join Date: Sep 2008 Location: Montreal, Canada Posts: 698	Re: Citigroup reaches aid deal with government Citigroup: World’s Worst Investment to Get Even Worse By Barry Ritholtz - February 27th, 2009, 6:29AM Losers double down. That’s the classic trading rule which the USA is about to violate in an enormous way. According to trading maven Dennis Gartman, one should “never, ever, ever, under any circumstance, add to a losing position.” And yet that is what we are about to do. To review: Former Treasury Secretary Hank Paulson made a terrible investment on behalf of the taxpayers by purchasing a 7.8% stake in Citigroup (C) for an initial $25 billion dollars. He further put the US on the hook by guaranteeing against 90% of future losses on $301 billion in assets. Subsequently, we (the taxpayers) injected another $20 billion dollars. At the time, Citigroup had a market cap of about ~$50 billion dollars. Today, its worth ~$13 billion. So for about 100% of the market value of Citi, plus insurance guarantees worth of as much as 500% of its value (~$275 billion), we got less than 1/10 of a company that in total was worth 1/5 of our investment. Pretty good deal, eh? That $45 billion dollar stake now has a market value of just over a billion. And, its about to get even worse. Rather than do what is the FDIC-mandated-by-law thing, we will instead convert the nearly worthless common into preferred shares. The taxpayers stake will rise to near 40% of Citigroup. NYT: “Under the terms of the deal, the Treasury Department has agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock. It will convert its stake to the extent that Citigroup can persuade private investors, including several big foreign government investment funds, to do so alongside the government, two people close to the deal said.” What does this do for us? Well, the higher investment stake creates an enormous incentive for John Q. Public to continue to pour money into Citi, regardless of valuation. The inept banking giant then has access to infinite amount of capital, courtesy of you, the 1040 filers. Its just another example of why these insolvent banks should be nationalized, or for you squeemish free marketers, FDIC mandated, pre-packaged Chapter 11, government funded reorganization. If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finsh marginally ahead of George W. Bush on the list of worst presidents. This is not change we an believe in . . . http://www.ritholtz.com/blog/2009/02...-to-get-worse/

04-17-2009, 11:17 AM	#3
oceanblue Avalon Senior Member Join Date: Nov 2008 Location: Sydney, Australia Posts: 23	Re: Citigroup reaches aid deal with government Citigroup’s $1.6 Billion Profit Exceeds Estimates By Bradley Keoun April 17 (Bloomberg) -- Citigroup Inc., the U.S. bank propped up by $45 billion in government bailout funds, ended a five-quarter losing streak by posting a $1.6 billion profit on gains from an accounting rule that helps companies in distress. Profit compared with a net loss of $5.11 billion, or 34 cents, a year earlier, the New York-based bank said in a statement today. The bank posted a loss per share of 18 cents because of payment of preferred dividends. The average estimate of 13 analysts surveyed by Bloomberg was a loss of 32 cents. Citigroup investors hadn’t seen a profit since before Chief Executive Officer Vikram Pandit took over in 2007. While the bank cut compensation costs and other expenses, it couldn’t halt rising delinquencies on home and credit-card loans. “It’s very hard for me to foresee that one quarterly earnings report, or one announcement by Vikram Pandit that they are more profitable than they’ve been since the third quarter of ‘07, means all past things are forgiven,” said Douglas Ciocca, a portfolio manager at Renaissance Financial Corp. in Leawood, Kansas. “There has to be demonstration of traction.” Citigroup posted a $2.5 billion gain because of an accounting change adopted in 2007. Under the rule, companies are allowed to record any declines in the market value of their own debt as an unrealized gain. Accounting Changes The rule reflects the possibility that a company could buy back its own debt at a discount, which under traditional accounting methods would result in a profit. Critics say a company in distress is unlikely to realize the gains, and would have to reverse them eventually if it recovers. Such reversals probably contributed to a first-quarter loss at New York-based Morgan Stanley, the Wall Street Journal reported April 8. Citigroup, one of 19 U.S. banks gearing up for the release of “stress tests” run by the Federal Reserve, has quadrupled on the New York Stock Exchange since falling to an all-time low of $1.02 on March 5, in the wake of the company’s announcement that as much as $52.5 billion of preferred stock would be exchanged for common shares to bolster the bank’s equity base. Under that plan, as much as $25 billion of the government’s investment in the bank will be converted into regular shares, giving it a 36 percent voting stake. Citigroup’s tangible common equity -- a cushion against losses that many investors and analysts study -- will increase to $81 billion from about $30 billion, the bank says. Existing shareholders will be left with about a fourth of their original stakes. U.S. Support The government support and additional capital probably are enough “for now” to spare existing shareholders from being wiped out completely, David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, wrote in an April 9 note to investors. “For prospective new investors, it may be too early to dive in, given continued high-risk exposures that may well require more dilutive actions,” Trone wrote. The stock closed at $4.01 yesterday. At its peak in late 2006, Citigroup stock was worth $56.41, for a market value of $277 billion. At the current price, the market value stands at about $22 billion. In November, Pandit, 52, pledged to cut 52,000 jobs from the company’s 352,000-employee workforce, including 26,000 through business divestitures. In January Pandit reorganized Citigroup, tagging the CitiFinancial consumer-finance and Primerica insurance units for eventual disposal and putting them into a separate division, Citi Holdings, with other businesses deemed “non-core.” The move, he said, would help investors focus on the earnings power of the company’s “core” retail, corporate and investment- banking businesses. More Writedowns He also shifted some of Citigroup’s distressed trading securities into a long-term “held-to-maturity” investment status, sheltering them from further writedowns while betting the debt instruments will eventually pay off. The bank still faces speculation about its survival prospects, as reflected in the elevated prices for its credit- default swaps, a type of instrument that investors use to insure against a debt default. Citigroup’s credit-default swaps as of yesterday were trading at 557, up from 193 at the end of last year. By comparison, rival New York-based bank JPMorgan Chase & Co.’s swaps are trading at 174. Lehman Brothers Holdings Inc.’s swaps were at 322 a week before the U.S. securities firm filed for bankruptcy last September. Retaining top employees may be a challenge for Pandit, Oppenheimer & Co. analyst Chris Kotowski wrote in an April 8 report. Stock Dilution “With Citi’s stock permanently diluted and the company deeply dependent on government assistance, we think it is among the most vulnerable to a flight of revenue-producing talent,” Kotowski wrote. The receipt of taxpayer money has forced Pandit to endure congressional scrutiny of line-item expenses, including a $10 million executive-suite renovation and a 20-year, $400 million sponsorship of the New York Mets’ stadium in the New York City borough of Queens. He vowed to cut his salary to $1 until the bank returns to profitability. The earnings report follows earnings announcements by U.S. banks whose results have surpassed analysts’ forecasts. Goldman Sachs Group Inc. on March 13 reported better-than- expected earnings as a surge in trading revenue outweighed asset writedowns. Wells Fargo & Co., the second-biggest U.S. home lender, said last week it had about $3 billion in first-quarter net income, up from $2 billion a year earlier. Profit of about 55 cents a share was more than double the average estimate of analysts in a Bloomberg survey. http://www.bloomberg.com/apps/news?p...H40&refer=home