"Capital is key to Citigroup's future. And on that score, investors are still worried, even after the banking giant announced plans Monday to cut 50,000 employees. ... Tangible assets, which don't include goodwill or intangibles, are 55 times the bank's tangible equity. J.P.Morgan Chase, by contrast, is 31.4 times, with Bank of America is 31.3", David Reilly at the WSJ, 18 November 2008.
"Behind headlines of record losses, a small group of Wall Street traders on commodities, currencies and interest-rate trading desks have made huge profits for the banks that employ them. That is setting up a scramble as traders vie for dwindling pools of bonus money once heaped on such top performers. So far, they look to be on the losing side of the trade. ... UBS, meanwhile, is crafting packages that withhold short-term pay if long-term bets go sour. Shaken by the global financial crisis and increasing government oversight, banks are groping with a new way of doing business: Pay out huge sums and risk public ire and perhaps more government intervention. Pay too little, and tempt defections or insurrection from the few people who are driving this year's profits. ... While Morgan Stanley's chief financial officer cited the commodities-trading group on an analyst call this year as one of the bank's 'two top businesses,' some traders in the unit in the past have argued that the commodities group is undercompensated relative to its contribution. ... The best traders at top-tier commodities and currency trading desks made $10 million to $20 million or more last year, and the next level down, traders who brought in $100 million in revenues, might have made $4 million to $5 million [Michael Karp] says. Generally, traders look for bonuses of up to 10% of profits they made for a firm, with adjustments for the performance of the unit and the overall firm. ... [Gustavo] Dolfino says star foreign-exchange traders who expected to make $25 million this year after earning the firm $250 million may get less if it isn't clear the feat can be repeated without the use of borrowed money. Acess to the firm's capital has been a key element to the returns of Morgan [MS] and Goldman [GSG], who have led a virtual duopoly in this commodities-trading business for more than two decades. ... Goldman, the other dominant Wall Street commodity dealer, could make as much as $3 billion in net revenue, say people familar with the results", my emphasis, Ann Davis (AD) at the WSJ, 19 November 2008.
"'The villagers are at the gates of the castle with burning torches,' says one compensation consultant. The sheer amount that bankers are paid riles people at the best of times. When the economy is ravaged and the source of the trouble is banks themselves, the pitchforks come out. Politicians on both sides of the Atlantic are gleefully grilling bankers on pay. ... Bankers are desperately trying to placate their critics. ... Paying out billions in bonuses will still look awful. Worse, many expect the ratio of compensation to income, which normally hovers just below 50%, to balloon as banks' revenues fall faster than their pay bills. ... Surely things are so bad that banks could still afford to disappoint even their better employees by screwing down on their pay? Banks everywhere are ditching staff, after all. ... Mob justice may have deserving targets but it is always crude and usually goes too far. Attacks on bankers' pay are no different", Economist, 20 November 2008, link: http.www.economist.com/finance/PrinterFriendly.cfm?story_id=12650356.
"Treasury Secretary Henry Paulson, under fire from lawmakers and others for his approach to resolving the financial-sector crisis, defended his actions as 'necessary steps to prevent a financial collapse.' Mr. Paulson said Thursday that Washington should take a hard look at compensation practices in the financial-services industry, as well as the process of securitzing loans and selling them to investors. ... Mr. Paulson said he has dealt with matters as best as he could, and blamed the turmoil on factors including 'government action and mistaken actions, outdated U.S. and global financial regulatory sytems, and ... the excessive risk-taking of financial institutions'," my emphasis, Deborah Solomon at the WSJ, 21 November 2008.
"Wall Street firm [GSG] said Friday that it will issue debt backed by the Federal Deposit Insurance Corp. under the new Temporary Liquidity Guarantee Program, or TLGP", Matthew Cowley at the WSJ, 22 November 2008.
Mike Shedlock's 20 November 2008 post about Citigroup is worth reading: http://globaleconomicanalysis.blogspot.com/2008/11/citigroup-blames-short-sellers-for.html.
Yves Smith's (YS) 20 November 2008 post about Citigroup is also worth reading, http://www.nakedcapitalism.com/2008/11/citi-considers-selling-itself-in-whole.html.
YS has another post about Citigroup, 23 November 2008 worth reading, http://www.nakedcapitalism.com/2008/11/new-york-times-citi-woes-due-to-lousy.html. I add, "Where were the CPAs"? CPAs are supposed to evaluate a client's "business risks" among other things while doing an audit. The American Institute of Certified Public Accountants published Assessing and Responding to Audit Risk in a Financial Statement Audit (Assessing), 2006, a 498-page tome about how CPAs should consider risk during audits, 498 pages of junk to me. I read all 498 pages. Silly me. Lots of words, no substance. If Citi has "risk control" problems, whatever that means, what did KPMG get $88 million in 2007 for? Plaintiff's bar, start your engines. I smell a lawsuit. Section 4.21 of Assessing reads, "Usually, management identifies business risks and develops approaches to address them. This process for managing risk is an element of the client's internal control and should be evaluated as part of your procedures to gain an understanding of internal control". Then what? Another gem, "During the audit, you may identify risks of material misstatement in the financial stattements that management failed to identify. In such cases, you should consider why the client's risk assessment process failed to identify those risks and whether their process is appropriate to the client's circumstances". Well KPMG? Does anyone at Citi or KPMG know what cost of capital means? Isn't Robert Rubin (RR), "formerly" of Goldman Sachs and Treasury a Citi director? Why does Citi pay RR, double Ivy Leaguer, Harvard followed by Yale Law School, $17 million a year? Much of auditing is window dressing. Hey Mark Olson, of the PCAOB, did you read this NYT article? What if anything, will you do about it? Hey RR, do you know what cost of capital means?
GSG "top executives"? You're kidding. That these guys are eligible for any bonuses shows Wall Street compensation practices are bizzare. Joe Schmoe gets "punished" to support overpaid incompetants and worse, who want bonuses! What chutzpa; i.e., asking a judge for mercy after murdering your parents saying, "Your honor, I'm an orphan". What are investment banks today? A scam! They pay employees every dime possible, then having pushed themselves to the brink of insolvency, scream for bailouts. And get them! Babe Ruth, the Sultan of Swat, El Bambino, in 1931, during the depression asked for an $80,000 ($3 million today) salary. When told that's more than President Hoover makes, $75,000, responded, "I had a better year than he did". Did you have a better year than Bush, Lloyd Antoinette Blankfein (LAB)? Is your public approval rating better than Bush's 20%? LAB, here's a tip: keep your head down.