You heard it here first, the next biggest bank in the world, Citi-Morgan ... it makes a lot of sense for JP Morgan... but investment bankers on both sides will shudder because there is almost an exact replication, thus any merger will see at least 30%-40% of investment banking staff being cut. JP Morgan would value possibly the best global commercial banking franchise... provided the Treasury steps up and guarantee one or two hundred billions in losses (ala Bear Stearns). But I am getting ahead of myself, it may happen only.
Citigroup’s current market capitalization.
Citigroup’s market cap in April 2008.
Citigroup’s market capitalization one year ago.
The value of risky “legacy” assets that Citigroup is moving off its trading portfolio and into its investment portfolio or marked “available for sale.” These assets include collateralized debt obligations, leveraged loans, mortgage securities and auction-rate securities, according to Bernstein Research. They likely would have qualified to be bought by the government under the first TARP plan to buy troubled assets.
The value of legacy assets Citigroup kept in its trading portfolio.
The estimated fourth-quarter writedown that Citigroup might have to take on those $80 billion of assets when it transfers them, according to Bernstein Research.
Citigroup’s most recent loss, in the third-quarter.
Citigroup’s loss in the second quarter.
Citigroup’s loss in the first quarter.
Citigroup’s net income per employee.
Citigroup’s return on equity — a measure of management effectiveness — as of Sept. 30.
Citigroup’s return on equity as of Sept. 30, 2007.
The price that Citigroup paid to acquire Old Lane, Vikram Pandit’s hedge fund.
What Vikram Pandit earned from the sale.
Citigroup’s first-quarter writedown on Old Lane. The bank closed the fund in June.
In January, the Government of Singapore Corporation (GIC) had invested US$6.88 billion in Citigroup via a convertible bond issue. Today regional Asian banks were whacked. Just considering the massive bank transactions between Citi and other banks is sufficient to make investors reconsider about counterparty risks and systemic risks. Will Citibank survive??? Citibank has an unquestionable franchise globally in banking, possibly only surpassed by HSBC. It still has enormous deposits, though much of it is from outside of the US as invetsors have pulled much of their deposits from any and every US bank. The developments yesterday will probably cause a substantial number to yank their Asian deposits out of Citigroup now. Things can snowball very fast. Fear is the worst thing when it comes to potential bank runs, then suddenly you cannot get any credit lines and things freeze up.
The selldown in Citigroup was due to Henry Paulson changing his TARP plans. Now he is not going to use the funds to buy toxic assets (as well he shouldn't because that does not add to the banks' capital at all). Hence the credit default swap market where CDS premiums on Citi has now widened to 360 bps – meaning that investors are willing to pay more to get protection against possible default on Citi. A CDS spread of 360 bps means that an investor must pay US$360,000 to get US$10 million protection on Citi.Citigroup has about US$150 billion - US$200 billion worth of distressed financial assets. Remember that Citigroup still has a lot of shit tied up with Lehman Brothers (please re-read Lehman Brothers, The Rosetta Stone posting). Now that was supposed to be taken off its book, but has since been thwarted by Paulson.
The bigger reason for Citigroup's share price collapse was the announcement that it would buy about US$17.4 billion in assets from structured investment vehicles, or SIVs, that were affiliated with Citi. It said that the move — which it called a “nearly cashless transaction” — would complete the bank’s wind-down of these troubled investment pools. Citi was a pioneer in the business of SIVs, which once made lots of money by issuing short-term notes to invest in longer-term securities with higher yields. They traditionally resided off the balance sheets of the banks that created and advised them. This meant that the banks are now starting to unind the SIVs on their own as no help is now forthcoming from the Treasury.
Cash is king, but bloody hell, where to put the cash... certainly not in a bank!
--------------------------------p/p/s ... actually Citi is a very very good bet now at $6.... after Lehman Bro, Treasury will NEVER let another inv bank fail ... which means.... merger or bailout.... merger = ppl like JP Morgan will have to pay btw $15-25 per share, close to BV.... with Treasury guaranteeing a couple of hundred billions.... so there is a 200%-400% upside, its a calculated bet
p/s photos: Aya Kiguchi