Monday, November 16, 2009
Citigroup's Death Rattle
"Over the past 80 years, the [US] government has engineered not one, not two, not three, but at least four rescues of the institution now known as Citigroup. In previous instances, the bank came back from the crisis and prospered. ... Chris Whalen, editor of the Institutional Risk Analyst, calls Citigroup 'the queen of the zombie dance,' referring to the group of financial institutions that the government has on life support. 'They are hoping that a combination of bank assistance and maximizing revenue and buying time will let them survive,' he said. 'When I look at the whole picture, Citigroup is in the process of resolution. I continue to believe the equity is worth zero and that the company will have to go to the bondholders for some kind of money to make the bank stable.' ... 'Our distinctiveness is we connect the world better than anyone else,' [Vikram Pandit] said, noting Citigroup's global reach. ... "it's very hard to change perceptions in the market place,' he said. 'We are not a troubled bank. We have a lot of assistance from the government. We can't fight that.' ... One ugly class of securities continues to haunt the bank: collateralized debt obligations, or CDOs. ... The suit contends that by late 2006, Citigroup's CDO operations 'had devolved into a Ponzi scheme where unsold portions of older CDO securitizations were recycled as the asset base for new CDO securitizations.' Furthermore, the lawsuit saysm Citigroup executives engaged in various accounting gimmicks to conceal the bank's ownership of assets that eventually soured", Andrew Martin & Gretchen Morgenson at the NYT, 1 November 2009: http://www.nytimes.com/2009/11/01/business/economy/01citi.html.
I agree with one thing VP said, Citigroup is not a "troubled bank". It is the "troubled bank". See my 15 December 2007 post about SIVs: http://skepticaltexascpa.blogspot.com/2007/12/citigroup-comes-clean.html. Imagine Citigroup paid $800 million to buy VP's "team", my 7 January 2009 post: http://skepticaltexascpa.blogspot.com/2009/01/citis-800-million-man-2.html.