Wednesday, April 01, 2009
Why The Surviving US Banks Are Worth A Punt Now
The surviving US banks are worth a punt now because of AIG. The US government now owns 80% of AIG (hands tied behind their back and you can drip candle wax on their naked bodies as well). AIG has been begging with their outstretched hands and for the fourth time in months, they got the most recent $30bn injection - add them all up AIG has taken $170,000,000,000 from the American public, and that does not even include the $85bn loan from Federal Reserve. There are so many zeros in that figure, imagine if you have a bank account with that kind of figure - it has to be an accounting entry, you cannot possibly transfer the sums via cash ... you CANNOT EVEN PRINT MONEY THAT FAST, if you wanted $170bn, you probably have to wait a few months to get your money. Hence it has to be an accounting entry, you credit AIG's accounts by $170bn and debit somewhere else... guess where... aahhh the Fed's debit entry. The biggest bank robberies cannot ever come close to robbing via an accounting entry. Its good to be the king! AIG already lost $40bn last year, so where did all the money go to?
Some $100bn went to banks. Yes, that right. We all know what CDOs are by now, and the banks have been buying many of these CDOs themselves, but at least most of them were smart enough to hedge some of those positions. They did so by buying Credit Default Swaps on these CDOs - i.e. if the CDOs fail then AIG will have to pay the banks. The following payments made to the banks largely consist of counterparty losses and Credit Default Swaps losses.
Among the biggest beneficiaries of the AIG's ATM was Goldman Sachs with $12.9 billion. Bank of America. But the bank that probably gained the most has to be Bank of America which together with Merrill Lynch got a collective $12bn.
Now do you you see why so many of these banks which got TARP money are now saying that they will now repay the money back.... so soon!!! ... after just a few months they can repay the funds back??? Suddenly things are so rosy. SocGen got $11.9bn, Deutsche Bank got $11.8bn, Barclays got $7bn, even the municipalities got $12.1bn. Surprisingly, Citibank was not on the list.... hmmm.
These sums are nothing to be sniggered at. First it reduces the uncertain asset in the "receivables" and turning that into certain "cash". Secondly, without tooting the horn, it probably improves the cashflow for these banks for 2009 materially as even they probably thought they would not get the cash back from AIG so soon.
p/s photos: Eri Otoguro