After the waterboard forced feeding of Countrywide Financial and Merrill Lynch, Bank of America finally went after some tasty treats of it’s own delight, China Bank of America, had already invested  $4.9 billion in the bank, an investment which  tripled, to $14.5 billion, as of Sept. 30, according to Bloomberg.

Bank of America Corp. will pay $7 billion to almost double its stake in China Construction Bank Corp., adding to the purchase of Merrill Lynch & Co. even as it cuts jobs and gets government bailout funds.

Chief Executive Officer Kenneth Lewis, three weeks after getting $15 billion from the U.S. government, raised his bet on China Construction after the stock lost 45 percent in the past six months. He is paying 32 percent less than yesterday’s closing price.

Another way of looking at it is that the original stake is 32 percent less than yesterday’s closing price, but that’s way too negative. So, let’s do some quick math here, as of Sept. 30  Bank of America had $14.5 billion sunk in China Construction Bank Corp., then with half that amount it doubled down the size of its stake, well sports fans that tells some of us that the shares of China Construction are headed the wrong way. But some advisers on the Street think that’s the right direction,  the advisers who get paid to think that way that is.

“People should be delighted that Bank of America is thinking long term about its options and isn’t just barricaded in their shack out in the woods,” said Daniel Rosen, principal of Rhodium Group, a New York firm that advises companies on overseas investments.

Yea thanks Dan, what’s your take on the deal. is it more than all the salaries of all the new ex-employees of Bank of America put together?

Lewis slashed his dividend by half after reporting a 68 percent drop in third-quarter profit because of rising losses on consumer and business loans. The bank has raised $22 billion by selling common and preferred shares this year, including $10 billion in October to help pay for its Merrill Lynch acquisition.

Thousands of Merrill Lynch and Bank of America employees will lose their jobs because of the merger, Merrill CEO John Thain said on Oct. 20. The purchase is expected to be completed on or about Dec. 31.

This acquisition is just another stop gap to fund the catastrophe du jour, and worry about tomorrow if it comes. The write downs and blow ups for previous binges are coming up in chunks and Bank of America thinks it can stave them off with quickie pick ups and press releases. They can’t.

Bank of America acquired mortgage giant Countrywide and Merrill Lynch during the past year, which are two of the most influencial companies in their industries. Luckily, the bank was able to get a deal on both firms thanks to turbulent financial markets. The big question is whether or not Bank of America has enough money to keep the positions held by these firms running smoothly while the markets current themselves. If so, Bank of America shareholders may be in for a pay day.

Well actually there is no question at all, Bank of America is insolvent so it does not have enough money to keep the positions held by these firms running smoothly unless it find another acquisition to cannibalize and discard. All this while the markets current themselves, whatever that means, the markets are crashing and crashing hard, that is the reality investors and employees must live in and  deal with.

The mortgages and securities held by Countrywide and Merrill Lynch may not be worth a lot now, but they could increase in value over the next few years. These long-term assets are subject to short-term pricing disparities thanks to mark-to-market accounting, which requires that the value be the current market price. So, even if a security is worth a lot of money (by taking the present value of its future cash flows), it isn’t worth a dime on the balance sheet if no investors want to purchase it. Fortunately, a recovery in the credit market will help these purchasers come back out to play.

The mortgages and securities held by Countrywide and Merrill Lynch are not be worth a lot now, and unfortunately, almost certainly never will be because  a recovery in the credit market is extremely unlikely. Those markets were a bubble blown up to burst, only another credit bubble will bring them back to sea level let alone profitability.

And even as the bank gets cut down by UBS, its CEO Kenneth Lewis speaks with a forked tongue from both sides of his mouth.

Chief Executive Kenneth Lewis said on Thursday he is “optimistic” the financial system is near the end of a painful deleveraging process that has throttled credit markets and dethroned some of Wall Street’s mightiest names.But Lewis warned 2009 would be another “tough year” for the finance industry with credit costs unchanged, if not higher, than in 2008, and rising charge-offs in credit cards as the economy worsens and unemployment climbs.

Well which is it Ken, is “the financial system is near the end of a painful deleveraging process” or will 2009 would be another “tough year”, or is the end of 2009 near? Ken didn’t say, but he just won’t quit.

Asked if the unnerving, seemingly unending series of multibillion-dollar writedowns by banks was at an end, however, Lewis said, “I could answer that question with great confidence today and feel like a fool tomorrow. We’ll just have to let it play out.”

He declined to predict how many jobs the sector might shed before the rebound begins but warned the layoffs weren’t over.

“I can’t predict employment levels but I can predict it’s going to be a tough year,” he said.

Well lets start with about 10,000 Ken, is that a good start?  But like everything else in the credit crunch we think that number is very likely to grow exponentially, to something like 30,000,

Bank of America could end up cutting 30,000 jobs as it moves to absorb Merrill Lynch, three times as many as previously estimated, sources told CNBC.

But why don’t you tell us Ken is that a good ball park estimate?

We won’t say that Goldman Sachs is at it again rather that a just stay at it. By deception, double-cross, connections and insider information the Golden Gangsta routinely pulls the strings of government and finance to squeeze the middle and collect at both ends. This time the bookends were State of California bonds and the credit default swaps sold on them. Goldman used its influence to persuade the state of California to sell bonds while it issued insurance or credit default swaps (CDS) against the default of those same bonds. But before selling the default swap the bank coned institutional investors into selling those bonds, thus pressuring the bond prices down and of course the credit default swaps upwards. Now the bonds were no riskier after the price decline, but only Goldman knew that and so could gouge the State of California for a higher premium payment.

It could exaggerate people’s worries about our credit,” said Paul Rosenstiel, head of the public finance division of the treasurer’s office.

Such worries would tend to drive down the price of California bonds. That, in turn, would drive up the interest rate the state and its municipalities pay to borrow money. An increase of a single percentage point on a $1-billion bond issue would cost taxpayers an additional $10 million a year in interest.

That’s especially troublesome at a time of severe budget turmoil and tight credit. Gov. Arnold Schwarzenegger has warned that the state could run out of cash as early as February.

That exaggeration is market manipulation and me, and it represents cutbacks in education and other important services to the people of California. Why? Because the state at a higher, and artificially higher premium for its insurance. It’s all fine and dandy to Goldman though when asked about the details they went mum.

Some experts said the investment bank’s actions, while not illegal, might be inappropriate. “That’s not a good way to do business,” said Geoffrey M. Heal, professor of public policy and business responsibility at Columbia University. “They’ve got a conflict of interest and they’re acting against the interest of their customers. . . . You act in the interests of your clients. You don’t screw them, to put it bluntly.”

Goldman declined to discuss the details of its trading strategy. “We continue to support our clients and underwrite transactions,” spokesman Michael DuVally said in an e-mail response to written questions on Oct. 28. He said Goldman “as a firm” was no longer giving the trading advice to clients. He declined to elaborate.

Goldman’s strategy was embodied in a 58-page report presented to institutional investors in September. The document, stamped “Proprietary and Confidential,” was obtained by ProPublica, a New York-based nonprofit organization specializing in investigative reporting. This article was reported jointly by ProPublica and the Los Angeles Times.

He really didn’t have too elaborate and you can tell what those 58 pages are all about any way. It’s all in keeping with the Goldman and strategy of using insider information and selling out your client as they did hitting it big in 2007 betting against the same subprime mortgages it sold to investors. This is the Golden mantra and the Gangsta is humming it melodically. And the law, oh listen to California Treasurer Bill Lockyer tell you how that’s on the Gansta’s side too.

“Investment banks bring issuers and investors together,” he said. “Securities law has recognized the potential for a conflict of interest in playing both roles.”

Under the law, the solution is for the parts of the firm dealing with either side to be isolated from each other so that information does not improperly flow between them to benefit one set of clients more than another. There is no evidence that the wall was breached in this case. Assuming such protection was in place, Lockyer said that fear of market manipulation was unfounded.

Does that sound like Lockyer is on the gansta side too? Listen to this,

There is no evidence that the wall was breached in this case. Assuming such protection was in place, Lockyer said that fear of market manipulation was unfounded.

If you could stop laughing long enough you could see the evidence, that is Goldman sold the bonds, the credit default swaps, just as the bonds crashed, but did not default, no evidence, I’m still cracking up!

But look boyz and girls, we all with a three digit IQ know what went on here and how Goldman was able to float the California bonds in the first place. The real CEO of Goldman Sachs, Treasury Secretary Uncle Hank Paulson, got Bushes California buddy Arno to push the bonds through Goldman and clearly Lockyer was brought on board. Then Goldman went out and did the bad mouthin of the muni bonds thing, predictably prices fell as Goldman sold CDS on bonds with no real increased risk and the Gansta cleaned up.

And you could not be so convinced of Arnies role in this if he hadn’t built a track record for himself, when he tried so hard to terminate the state’s nurses, teachers, and firefighters, pension plan as serve it up to Wall Street in similar fashion.

Schwarzenegger’s first step was to reward corporate backers in the health care industry by suspending a hard-won law that lowered patient-to-nurse ratios in the state’s hospitals and emergency rooms.

But Schwarzenegger had at most a bit role in this gig, most likely it was Hanks show all along, manipulating the government like the Godfather puppet on the end of a golden rope.

2008-11-26 Bail Out Costs Rise Expoentially:

The bailout passed off on US taxpayers was first $700B, then was $3 trillion, and is now $8.5 trillion. If that number is to big to have any real meaning to you, it’s 60 percent of the entire US GDP. What is even more insidious is that the very people paying for the billionaire charity are the same ones being suffocated it.

Just another reminder that the private, run for profit, Federal Reserve has the printing presses cranked on overdrive in order to bailout Wall Street and the big banks, while the homeowner and the middle class see their savings devalued out of existence.

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2008-11-05 Bailing for Bucks-:

The banks went bailing for bucks once again today. This time it was U.S. Bancorp that that got a $6.6 billion holiday gift from the everyday you and me working stiffs.

the Treasury Department has approved investments of $170.5 billion in 40 banks. (Treasury has set aside a total of $250 billion for the capital injection program.) The vast majority of that, of course, has gone to the country’s largest banks: $100 billion went to just four banks. But as more regional banks join, the list becomes more varied. The Treasury has so far invested less than $1 billion in 18 of the banks. The smallest investment so far? California’s Saigon National, for a mere $1.2 million.

The Office of Thrift Supervision has issued a cease-and-desist order against AmTrust Financial Corp based in Cleveland Ohio. The effective date of the order is November 19, and you can see the PDF here. The order specifically prohibits the bank from making any loans for land acquisition and development, while still allowing the bank to originate consumer or residential mortgage loans, or home equity lines of credit (HELOCs).

AmTrust Financial Corp of Cleveland has been ordered by a government regulator not to take on new loans or extend new lines of credit for land acquisition and development until it has more cash in its coffers.

The company must also revise its current business plan by the end of the month.

Crain’s Cleveland Business cites cease and desist orders from the federal Office of Thrift Supervision that say AmTrust engaged in unsafe and unsound banking practices.

The orders do not apply to consumer or residential mortgage loans, or home equity lines of credit.

Crains says the orders also prohibit AmTrust from paying dividends without approval, and from making golden parachute payments or adding new board members without 30 days notice.

AmTrust was ranked as the 20th-largest residential mortgage originator in the nation during 2007, according to Inside Mortgage Finance. The bank has 36 branches in Ohio and other branches in Florida and Arizona.

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2008-11-25 Bailing for Bucks-1:

Citigroup had yet another capital raising affair, this time taking down $306B in real-estate loans and securities, and losing more than $29B on the wost holdings in Citigroup’s portfolio.

This brings the bank’s Misery Index to:

$295.2B + $306 = $601.2B.

Reader beware: more losses are on the way.

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2008-11-21 Panic:

It’s getting to be that time. The once-stoic Citi now moves with fervent desperation to prevent its inevitable collapse. <>

2008-11-17 Falling:

With write-downs and losses piling up and earnings nowhere to be found, Citigroup is cleaning 50,000 jobs off the balance sheet before Christmas.

2008-11-13 Loan Mod Feeding Frenzy:

Morals are of no matter when profits and survival are on the line. The feeding frenzy on mortgage borrowers and taxpayers never ends, and Citigroup has just joined the fray.

2008-10-16 Q3 Report:

Citigroup reported Q3 results and they were the same for the fourth straight time. Another loss!

1. Write-Downs/Charge-Offs: $83.3B + $14.2B = $83.3B
2. Cash Raised: = $36B + 25B= $61B
   
3. Level III Assets = $??
4. Loan Loss Reserves = $2.5B + $3.9B + previous > $6.1B
   

The Misery Index is > $295.2B

2008-07-16 The Graduate:

Just like a petulant school girl changing boyfriends every weekend, Wachovia is now pushing Citi out and welcoming Wells Fargo as the new honey du jour.

2008-10-02 Citi Swallows Wachovia:

Beleaguered and digging out from under the mountain of subprime debt it created, Citigroup was just force-fed a heaping helping of Wachovia’s undigested Golden West portfolio. 

2008-08-07 Citi Settles:

Citigroup has reached a settlement in the auction rate securities claim against the bank. All told, Citi will cough up $19.5B in two big chunks: $7.5B to charities and small businesses under a settlement with New York State, and then another $12B to 2600 different institutions holding instruments.

Our twin tallies, Pain and ARS-Buyback, now stand at $144.5B and $19.5B.

2008-07-29 Write downs Outed:
The big Citi soft balled its second quarter write-downs to beat the Street. Now they have to cough the remainder up in chunks before third quarter reporting.

2008-07-15 Q2 Earnings:

Citigroup reported its second quarter earnings today, but since everyone knows there are no real profits at the bank, all eyes were focused on the write-downs and distresses.

Write-downs primarily included $3.4B of sub-prime related direct exposures and another $2.4B tied to exposure to now-downgraded monoline insurers, Citigroup said. Credit costs included $4.4B in net credit losses and a $2.5B charge to build loss reserves.

So, the bank was less than spectacular, even in that department, but that is the one you don’t want to “beat the street” in.

1. Tally for Write-Downs/Charge-Offs: $69.1B + $14.2B = $83.3B
2. Tally for cash raised: = $36B
3. Current level of Level III assets at $22.7B
4. Current level of loan loss reserves at $2.5B + $Previous
   

The Misery Index is > $144.5B

2008-07-15 Dark Profits:

Citigroup engages in the shadow accounting of credit world derivatives and dark assets held off the balance sheet. Do they think we are all blind and sitting on the STUPID bench?

2008-07-07 Crashing:

Citigroup has crashed into its fiscal second quarter 2008 earnings report just like the bank demolished the last three. As the bleeding continues, Citi is missing earnings just like every other bank. But desperate times require desperate measures, not ineffective ones.

2008-06-25 Level III:

The losses and write-down numbers for Citi are staggering, but as of March 31, 2008, you could easily lob another $22.7B on the mountain. That’s because of the FAS 157 rule requiring banks to list their level 3 or junk assets. From the banks first quarter 10Q

Citigroup’s CDO super senior subprime direct exposures,
$22.7 billion at March 31, 2008, are Level 3 assets and are
subject to valuation based on significant unobservable inputs.

If Citi were able to sell this stuff, they would have long ago. If they didn’t have to make it public they wouldn’t. But if you think these assets will recover anytime soon or at all, I have a house I want to sell you at its 2006 listing price. So our level III tally comes to a cool $22.7B.

2008-06-24 Write Downs Count of a Different Sort II:

The cost of write-downs per employee counted just went up as Citigroup chops 10% of it’s investment bankers.

2008-05-22 Write Downs Count of a Different Sort:

We have been keeping a running tally of write-downs and other credit-related distress taken by the major banks since 2007. Here comes a write-down count of a different sort: how much in write-downs and credit losses firms have written off per wholesale banking employee.

Citi - $40.9B, 30,000 employees, $1,363,333 per employee

2008-05-21 - Leaving London:

It is probably the best, and possibly the only, thing the bank could do, but now there is one less subprime lender in the UK. In fact all the banks including Citigroup have severely limited credit flow to all borrowers. Thus spreads a contagion.

2008-05-20 - Falling:

It’s hard to say whether the real story here is the nosedive of Citi’s Falcon fund or the type of life insurance polices banks routinely purchase on directors, officers and employees. Of course, the banks own and are the beneficiaries of the policies, known as bank-owned life insurance (BOLI). In either case Citi is left wide open to possible law suits and even further write-downs.

2008-05-19 - Off Balance:

Banks are not writing down their write-downs and getting away with it. Instead they are writing them down in the balance sheet.

As for our friends in the Citi, they skipped $2B from the income by putting it to the balance sheet in a quarterly filing without telling a soul.

Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed.

Well we will have to see about that. We have Citi write-downs and disasters at $67.1B and we do believe that a $2B adjustment will balance things out nicely.

New distress number –drum roll– $69.1B.

2008-05-08 - Sleight of Hand:

Minyanville reports that Citigroup’s level three assets have reached 125% of shareholder equity. That is a fantastic figure considering the tens of billions the denominator has increased in the past few months, as Citi has been frantically “raising capital.”

2008-05-07 - Citi Mortgage and Citi Residential retail collapse:

And another part of Citi bites the dust as Citi Mortgage and Citi Residential are gone.

2008-04-29 - Citi Gets More Than it Wanted:

Citigroup’s self-dilutive stock sale went so well they got $1.5B more than they originally asked for.

Citi originally said Tuesday that it would raise $3 billion in a stock offering, but increased that amount by $1.5 billion after demand for the new shares exceeded its original offer. The banking giant said the offering priced at $25.27 per share, with the transaction totaling more than 178 million shares.

So they coughed up $4.5B this trip, leaving no doubt that there are more fools out there than we thought.

Goldman however was not impressed by the $4.5B raised. Perhaps the Golden Boyz are right this time — was the initial asking price a low-ball to create the illusion of an onslaught of investor demand in the ailing bank?

2008-04-29 - Citi Wants More:

Only a week after selling $6B in preferred stock, Citigroup said give me more, more, more. The largest US bank by assets said it will sell at least $3B in common stock. Short sellers will be out in force.

This brings Citigroup’s cash raised total to over $36B.

2008-04-29 - Crimes in the Citi:

The laundry list of Citigroup’s questionable dealings just got two hedge funds longer. As the bank spirals down to bankruptcy, bailout or the pink sheets, it is difficult to tell if it is doing everything it can to survive or attempting to take the rest of the world down with them.

2008-04-19 - Abysmal Earnings:

Citigroup begins 2008 the same way it finished 2007. The bank reported a worse-than-expected first quarter loss of $5.1B, but it was the monstrous write-downs totaling $15.1B that terrified investors. Even after burning over $46B of toxic trash in 2007 and giving its kitchen sink “mea culpa” in Q4, the first quarter 2008 write-down was a monster hit even by Wall Street standards. And our ever-near-a-CNBC-camera Meredith Whitney is already contemplating another dividend cut call. For the present, Citigroup’s fiscal first quarter 2008 was bad:

$6 billion in write-downs on collateralized debt obligations, $3.1 billion on leveraged loans, $1.6 billion on Alt-A mortgages, $1.5 billion on auction-rate securities, another $1.5 billion tied to downgrades of key monoline insurers, and — lastly — $212 million linked to off-balance-sheet debt coming back to haunt the bank.

In other words, there were a lot of write-downs; and many were tied to ongoing weakness in the mortgage industry.

Mish has a post summing up all the slings and spears of Citigroup’s misfortune.

So is the $15.1B the last bomb — the kitchen sink? Doubt it!

As this blog documents below, Citigroup had a near-death February weighted down by a litany of troubled subprime-related assets that are exposed to write-down risk. The write-downs won’t quit until the exposure ends, and neither will our tally, which now stands at $46.6B + $15.1B = $ 61.7B.

2008-04-09 - Seller Concessions:

And as more information comes out, we quote Mish with the anti-spin:

The deal was made in this manner specifically to muddy the waters. It appears that Citi is setting up a con game in which they may pretend they got 90 cents on the dollar when they really didn’t. That 20% indemnification clause in the sale is like a PUT option. That option has a value and it’s a huge mistake to pretend otherwise.

“Mistake” puts it lightly. We might use the term “lie”.

Bloomberg wants you to think everything will be rosy for Citigroup once the bank is able to sell $12B of loans at a loss to Apollo Management, Blackstone Group and TPG. But as long as Citigroup and friends keep lying about valuations, there will be problems down the road.

This all reminds us of the still-popular “seller concessions,” used to prop up home values (and of course Realtor and lender commissions), in the process severely damaging markets.

2008-04-08 - New Liquidity Drains Threaten Bank Lending:

To be considered a “well capitalized bank” by U.S. regulators, an institution can’t have more than 10 times its capital in risk-weighted assets. More than 99 percent of American banks qualify as well capitalized. But bond downgrades are going to throw a monkey wrench into that machine and threaten to bring it to a grinding halt.

2008-03-26 (2):

Bloomberg reports in a long article on credit lines that Citigroup has about $471B of undrawn credit line commitments (or at least, did at year-end 2007). As the article points out, this fact is much worse than it would seem in isolation, since now more than at any other time in living memory, borrowers need to draw down those credit lines.

And they are — the article headlines by noting that even Porsche and Sprint are hitting the credit lines hard.

It’s a thousand cuts for Citigroup and its uberbank brethren; you can add this to them.

2008-03-26:

Meredith Whitney at Oppenheimer expects Citigroup to write down roughly another $13B for the first quarter. Whitney earlier gained street creds by correctly predicting C would slash its dividend.

She’s been wrong about the extent of write-downs recently… most notably for Lehman and Goldman, but frankly, we suspect that means the banks are wrong, not Whitney.

Incidentally, Institutional Risk Analytics also has some foreboding words and analysis on Citigroup:

We hear in the risk channel that the internal situation at C is going from bad to worse as veteran Citi bankers are in near-mutiny against the new, two-headed management team imposed by regulators. Meanwhile, former CEO Chuck Prince, who is a consultant to C, is leading the discussions with regulators on behalf of the bank and is, in effect, acting as shadow chief executive of C. One insider predicts that the C annual meeting in several weeks time will be “very messy” and notes that acting Chairman Robert Rubin is nowhere to be seen.

Keep in mind that C, JPM and many other large banks are still trying to get their arms around the full dimension of the risks facing their institutions, this even as bank loan default rates remain well-below long-term averages. All of the subsidiary banks of C, for example, reported 127bp of charge offs in 2007, a full 2 SDs above peer but well below 1991 loan loss levels.

They believe Citigroup needs about three times current capital just to shore itself up against a more normal level of charge-offs. The 1991 recession was “mild” — this one won’t be.

Oh, and then there’s this: Citigroup to Pay $1.66B To Settle Enron Litigation. That can’t help the capital position right about now. However, since this is due to the last bubble, we won’t add it to our tally.

2008-03-12:

Citigroup has got caught up in the suddenly volatile municipal bond market. In what’s becoming a common event, the plunging prices of municipal bonds are forcing prime brokers to issue margin calls:

The move to inject $600m, and pledge $400m more, to shore up the funds, which had capital of $2bn and total assets of about $15bn, is another sign of Citigroup’s difficulties in dealing with the credit squeeze.

This adds another $1B to the tally.

2008-03-07:

We are warming up the calculator as Citigroup has announced more losses on the way:

Citigroup said Thursday it will reduce its mortgage assets by $45 billion over the next year and will streamline its remaining mortgage operations in an attempt to lower expenses by $200 million during the same time period.

We will have to see how the bank spreads out the writing-down. One thing for sure is that the buyers won’t be lining up around the block.

Another potential source of losses comes as the result of a somewhat desperate effort to raise cash. Forbes is reporting the bank will issue $2.5B in bonds. But because of the toxic nature of Citi’s paper they will have to underwrite most of it themselves, which could leave them holding a bag of their own unsold junk. It could easily be a large portion of the $2.5B.

We will keep our eyes open for possibly a large chunk of that $47.5B turning up in the dead pool.

2008-03-06:

The rift between reality and fantasy is widening at Citigroup and for the analysts that promote them. Six months ago, analyst Robert Olstein said:

Cititigroup Inc. won’t cut its dividend further or raise more capital and the shares may double over the next two years, investor Robert Olstein said.

That’s the dyslexic analysis; in the reciprocal period, its share value has been cut in half. Meanwhile back in the real world, actions speak louder than words and the bank

has started shedding clusters of U.S. branches in places where the bank lags far behind larger rivals.

Citi CEO had a message for employees to be ready to pack up at any time.

In a memo to Citigroup employees, Mr. Pandit wrote: “We anticipate that divesting some of our peripheral businesses will further contribute to our capital base.” He added that Citigroup remains “financially sound” despite more than $20 billion in losses last year on loans and investments.

We say about $16.6B more and counting.

2008-02-27:

A potentially bombshell revelation about Citigroup’s remaining risk exposure is tucked in this Bloomberg piece. Witness:

Citigroup, which has incurred $22.1 billion in losses from the subprime crisis, has $320 billion in “significant unconsolidated VIEs,” according to a Feb. 22 filing by the New York-based bank. New York-based Merrill Lynch, which recorded $24.5 billion in subprime writedowns, has $22.6 billion in VIEs, according to CreditSights.

What are these VIEs and why are they a threat? The article has a brief primer:

The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. …

…

VIEs, known as special purpose vehicles before Enron Corp.’s collapse in 2001, finance themselves by selling short-term debt backed by securities, some of which are insured against default.

…

Predictions for losses vary widely because banks aren’t required to specify the type of assets being held in the VIEs or how much they are worth, said Tanya Azarchs, managing director for financial institutions at S&P.

“The disclosure on VIEs is hopeless,” Azarchs said. “You have no idea of the structure or how that structure works. Until you know that you don’t know anything. It’s like every day you come into the office and another alphabet soup.”

Ah yes, these shadowy vehicles figured prominently in the Enron fraud and collapse, but its OK folks, they were renamed from “SPVs” to “VIEs.” Problem solved!

Obviously, not really. Remember how Citigroup had about $80B in SIVs? And remember how that was already disaster enough, with the “re-consolidation” of those off-balance-sheet vehicles resulting in Citigroup’s greatest earnings disaster and capitalization emergency in its history? Remember complete pieces of the company being sold off to Arab Shieks and Communist governments around the world?

Oh, great. We remember too. And, well, the company has another $320B in that kind of exposure.

Call them SIVs, SPVs, or VIEs; call them rutabagas or Flying Elvises if you want — its all the same thing: ethically fraudulent concealment of risks using off-balance-sheet vehicles to dodge regulatory capital requirements. There’s nothing new here, except the size of the numbers at stake.

We can’t wait to see the write-downs that come out of this monumental trash heap. A hint of the extent those might reach also comes from the article:

The securities in the VIEs may be worth as little as 27 cents on the dollar once they’re put back on balance sheets, according to David Hendler, an analyst at New York-based CreditSights. Hendler based his estimate on the recent sale of $800 million of bonds by E*Trade Financial Corp.

That would represent a haircut of more than $230B on the VIEs. Wow.

2008-02-26:

And the beat goes on for Citigroup as it is revealed the bank is holding about $20 billion of hard-to-value trading positions. Those hard to value positions are probably level 3 assets. That means no market exists for them, i. e. they are worthless. Technically it has to be said a market can always develop for the assets and they may be sold for a huge gain, in commercial real estate that is. I expect that we will see a write-down for theses positions too.

2008-02-23:

A Telegraph write-up contains a detail we missed in our last update: Citigroup has announced a $4B exposure to the troubled bond insurance sector. So you can throw that one on the pile.

2008-02-22:

At this rate Citigroup might not make it past the weekend. It’s been two days since Meredith Whitney made her devastating revelations about the bank, and the action has already begun. Following the usual MO of announcing bad news after the market close, the bank confessed that it once again would make the rounds, hat in hand, to cover the cost to bring their hedge fund Falcon Strategies funds onto its balance sheet (hedge fund implosion profile for Falcon here). The financial media reporting of the statement goes along the lines of the Associated Press:

Citigroup Inc. earlier this week agreed to provide $500 million in credit to one of its troubled hedge funds, the bank disclosed in a regulatory filing late Friday. The Citi-managed fund, known as Falcon, was brought onto the bank’s books, which will increase the bank’s assets and liabilities by about $10 billion.

And it’s the same at Bloomberg, Reuters, Marketwatch, and WSJ. That is $10B in assets and liabilites, but which is the greater? Well let’s see

The Falcon funds, run by Citigroup’s alternative-investments group, placed highly leveraged credit-market bets in part by using exotic vehicles tied to the mortgage market. The value of those instruments plunged in the second half of 2007. At one point last year, the funds had more than $2 billion in assets under management, including investments from some major banks.

and

Within three months, Falcon Plus, which had roughly $20 million in assets, had lost 52% of its value.

Another more recent Falcon Strategies fund was said to have lost around 50% of its value in the first three months of trading. So of the$10B in assets, possibly little more than a few hundred million is in the “assets” column. And believe it or not, things could get worse for the staggering behemoth:

The banking conglomerate also warned that further deterioration in the US housing market could lead to further write-downs in its sub-prime and leveraged loan books.

Thanks for the heads up, guys. We’ll still be keeping our own count just the same, which for distress and write-downs just went up by $10B.

2008-02-22:

If we had to pick which big bank would fail first, then we’d take Citi. In this interview Meredith Whitney, Oppenheimer & Co’s banking analyst, reveals the under-capitalized structure of Citigroup and additional write-downs of up to $70B. Here is how she sums it up:

Citi now has earnings problems, they have balance sheet constraints, they have further CDO writedowns, they have exposure to the monolines and they have the single largest concentration of exposure to high LTV [Loan To Value] mortgages.

Let’s take a look at each of these in turn:

• balance sheet constraint ——-:from $6 to $12 billion under reserve
• further CDO writedowns——-:over $29B of ABS/CDO exposure
• exposure to the monolines—–:up to $70B
• exposure to high LTV——— :over $50 billion

Excluding balance sheet constraints we get $149B in exposure, up $38B from our previous sum of $111B.

There is also a great lesson in here that actions do in fact speak louder than words. Hear ye:

Banks aren’t lending so businesses can’t grow, manufactures can’t invest, and this is a systemic issue because banks are still in denial. If these assets were truly marked to market banks would be indifferent to whether they hold them or sold them. Obviously they are not indifferent. The fact they are holding it means they have some hope that these assets will recover.

2008-02-20:

In addition to subprime lending it seems that some banks gorged themselves on a leverage buyout binge as well. From the WSJ:

The investment banks look to have put a lot on the line for relatively little payoff. Citigroup, for instance, earned only $856 million in fees from private-equity firms in 2007, even though the bank underwrote leveraged loans totaling $114.3 billion and still holds $43 billion in exposure. Oppenheimer analyst Meredith Whitney estimates Citigroup’s leveraged loan write-downs would be about $2.5 billion at the range implied by the 6% decline in the leveraged-loan focused Markit LCDX index since the fourth quarter.

If your keeping count (and we are, don’t worry) thats another $2.5B written down to the bottom line. New total write-downs including LBs come to $26.6B. For the remaining subprime related exposures, add $43B to the previously recorded $68B for a grand total of $111B.

2008-01-31

Citigroup recently reported fourth quarter 2007 net losses of $9.8B on the back of massive subprime-related write-downs. This has been bested only by UBS’s recent losses, but Citigroup’s gross write-downs and exposure are much larger.

Breaking the figures out, according to the company’s earnings report, they took a $6B write-down in the third quarter, followed by a whopping $18.1B in the fourth. This brings the year’s total to $24.1B (so far counted).

The company began “subprime reckoning season” in late 2007 with nearly $80B in off-balance-sheet SIVs and conduits tainted by subprime. They apparently decided it would be better to own up to the impact of these vehicles and brought them back onto their balance sheet in late December. This torpedoed prospects for the Treasury’s “M-LEC” SIV bailout fund in the process. Good riddance!

Citigroup successfully sold off some of the assets from these funds, contributing to the large fourth quarter net loss figure. According to the fourth quarter report, they reckon just over $29B of subprime ABS/CDO exposure remains, as well as $8B in RMBS, and about $30B in direct subprime lending.

We also have a figure of $1.7B for exposure to insurer ACA.

The total net exposure would then be about $68B for these items.

As of yet we do not have data on other forms of shaky mortgage loan exposure (Alt-A, Pay Option, etc.).

Citigroup went on life support and Paulson got the subprime slush fund that he sought nearly two years ago from among others Citi itself, to buy up the radio active waste, necessary to keep the ponzi finance scam rolling along. The idea behind that was to get the biggest banks to buy each others junk, that no one else would, a ponzi scheme within a ponzi scheme it never took off, but now Hank has the power of the Federal Governments infinite debt base and the FEDs printing press behind it and so those toxins no one else will touch can be dropped onto the FEDs steadly swelling balance sheet. The only blow back is an insolvent nation and hyper inflation, but it’s a small price for small folk to pay to keep the greedy, well connected elite in the lavish life styles to which they are accustom.

The U.S. government’s emergency rescue of Citigroup Inc. offers a new model for bank bailouts: explicitly insuring against losses on toxic assets, with taxpayers footing the bill.

The Citigroup plan extends the federal commitment beyond the previous framework of capital injections from the Treasury and credit from the Federal Reserve. Now, the U.S. is a partner in the performance of $306 billion in real-estate loans and securities, sharing losses beyond $29 billion on what are likely to be some of Citigroup’s worst holdings.

“Everybody and his brother has got to have their hand out now,” said Eric Hovde, chief investment officer at Hovde Capital Advisors, which manages $1 billion in financial-services stocks. “The whole problem is so much bigger and deeper than the Fed and Treasury ever understood.”

Well Eric that’s everybody and his brother has who has a nine figures before the decimal point net worth and the letters NWO branded on their forehead, but you’ve got the idea. Of course the burst of the credit bubble has got a lota folks just downright upset and they have a crazy way of seeing things.

Critics have accused Citigroup of taking too many risks. At this point, is there any amount of mismanagement that would disqualify Citigroup or any other financial firms from receiving taxpayer money, or does any large firm qualify for any amount of assistance that it might need? The bailout has other strings attached; the firm agreed to cut dividends and limit executive compensation. But at some point, should the firm’s managers, directors, and shareholders be sent packing altogether?

GRINCH!

What; why isn’t everybody just all holiday cheery about things? Maybe it’s the dangling dead weight of $249 billion weighing the good times down.

Taxpayers are conceivably on the hook for 90% of ($306 billion - $29 billion), in other words about $249 billion. But where does this money come from? Congress did not appropriate $249 billion for this.

This bailout represents a huge taxpayer risk. Yet it’s important to note that not all of the collateral will go bad. The percentage that might go bad depends on the valuation and selection of assets.

Ok Mish it might not all blow up, but you better than most know not to bet on that. Actually we may have had a chance to make it work right a la the Swedish “good bank” and ” bad bank” model, but that chance is gone and that maybe what the Citi bailout is all about. What Sweden did during its banking crisis in the 90’s, called a Securum was essentially a partial nationalization which kept the banking operations going, but took a bite out of the fat cats. But Paulson proposed the TARP instead and went too far down that road before realizing it was a dead end. That was when he announced that was would not pass out anymore bucks, but never said why. This is why!

Paulson soon realized the scale of crisis, largely triggered by his inept handling of the Lehman Brothers case, had created an impossible situation. Were Paulson to use the $700 billion to buy up toxic waste ABS assets from the select banks at today’s market price, the $700 billion would be far too little to take an estimated $2 trillion ($2,000 billion) in Asset Backed Securities off the books of the banks.

The Levy Economics Institute economists state, ‘It is probable that many and perhaps most financial institutions are insolvent today — with a black hole of negative net worth that would swallow Paulson’s entire $700 billion in one gulp.’

That reality is the real reason Paulson was forced to abandon his original ‘crony bailout’ TARP plan and opt to use some of his money to buy equity shares in the nine largest banks.

That scheme as well is ‘dead on arrival’ as the latest Citigroup nationalization scheme underscores. The dilemma Paulson has created with his inept handling of the crisis is simple: If the US Government paid the true value for these nearly worthless assets, the banks would have to write down huge losses, and, as Levy economists put it, ‘announce to the world that they are insolvent.’ On the other hand, if Paulson raised the toxic waste purchase price high enough to protect the banks from losses, $700 billion ‘will buy only a tiny fraction of the ‘troubled’ assets.’ That is what the latest nationalization of Citigroup is about.

Whatever this deal is about it is neither a full bailout nor implosion, but a full blown first desperate waste of workin stiffs billions. With Citigroups credit cards defaults picking up, the over leverage, known and unknown rotting on its balance sheet and the credit crisis setting in even deeper in 2009, whatever all the kings horses and men cook up will most certainly go down in flames.

A day after US taxpayers saved Citi’s bacon for the second time, analysts are already talking about the next steps the company needs to take if it is to survive.

While the government deal bolsters Citigroup’s capital ratios, “we are concerned that losses may eventually exceed the government’s backstop,” said Standard & Poor’s equity analyst Stuart Plesser.

What Stuart Plesser means to say is that he is absolutely certain that losses will eventually exceed the government’s backstop, and so should you. You should be absolutely sure that there will be a second and third bailout attempts, but for as many as there will be, they will fail one and all. Just as Mish long ago predicted this behemoth will not survive with it’s current high risk, over leveraged business model, the model which took it from the biggest bank on the planet to one on the brink, on life support. Which means that leveraged reckless speculation can build bad assets faster than all the bailouts put together can bail it out which means that and any new fangled, derived short term credit crack fix will transfer the patient from intensive care to the morgue, which means that it would better to shoot the patient yourself than prescribe any those measures that served to put the bank in its condition.

More crank is a waste of time and money, but in the sociopathy of the elites driving the train wreck it is exactly what will be prescribed.

PFF Bank & Trust of Pomona was one of three FDIC bank closings today. The closure marked the 22nd FDIC casualty of the credit crisis in 2008.

The bank had assets of $3.7B and $2.4B in deposits. PFF had a large concentration of housing construction loans hit hard by the deteriorating real estate market on the West Coast.

Federal regulators shut down two big savings and loans based in Southern California on Friday, saying they fell victim to the acute distress in the housing market in that state.

The two companies were the Downey Savings and Loan Association, based in Newport Beach, and PFF Bank & Trust of Pomona. Their closings brought the number of bank failures this year to 22.

The Office of Thrift Supervision, was the federal regulator for the California thrift.The acquiring institution is US BanK of Ohio. According to the official FDIC wed site:

All deposit accounts and all loans have been transferred to U.S. Bank, National Association, Cincinnati, OH.  All former PFF Bank banks will reopen for normal business hours as branches of U.S. Bank.

The FDIC will be taking a $700M hit in the failure of PFFF.

The FDIC estimated that Downey’s failure will cost the deposit insurance fund $1.4 billion, while PFF will cost another $700 million. As of the end of June, the fund had $45.2 billion, although the FDIC has multiple ways to boost the fund if necessary, including emergency lines of credit.

US Bancorp said U.S. Bank will buy almost all of PFFs and Downey’s assets, but it will not acquire assets or liabilities of their parent holding companies.

Nice deal. Bet you wish you could get one too.

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Downey Savings & Loan Association, Newport Beach, reached the end of the line today as it became the 21st FDIC casualty this year.

Federal authorities seized Newport Beach-based Downey Savings and Loan as the thrift fell below capital requirements to stay in business, authorities said late Friday.

The Federal Deposit Insurance Corp. announced it was turning over management of the 51-year-old thrift to Minneapolis-based U.S. Bank. As part of the same action, the FDIC also turned over Pomona-based PFF Bank & Trust to U.S. Bank.

The combined 213 branches of the two failed banks will operate under normal hours Saturday.

“Depositors will automatically become depositors of U.S. Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage,” the announcement said.

Read the official FDIC press release here.

Downey Savings had total assets of $12.8B and total deposits of $9.7B as of September 30, 2008.  The acquiring institution is U.S. Bank, National Association, Minneapolis, MN, which will receive the banking operations and all the deposits.

Read the official FDIC announcement here.

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The Community Bank, Loganville, GA has become the 20-th FDIC victim of 2008. The bank was was closed by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver.  Bank of Essex of Tappahannock, Virginia, will take over all of the deposits.

Community Bank of Loganville, Georgia, was closed by a state regulator today, the 20th U.S. bank seized this year as foreclosures rise and home prices extend declines in the worst housing slump since the Great Depression.

Bank of Essex in Tappahannock, Virginia, will take over all of the $611.4 million of deposits from Community Bank, the Federal Deposit Insurance Corp. said today in an e-mailed statement. Community Bank’s four offices will open Nov. 24 as Bank of Essex branches.

“Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage,” the FDIC said.

You can read the FDIC press release at the official web page.

There will be some minor changes in banking  services. For more information see section V of the FDIC web page.

The Automated Teller Machines (ATM) and online service will remain available.

As of Monday, November 24, 2008, you may continue to use the services to which you previously had access, such as, safe deposit boxes, night deposit boxes, wire services, etc.

Your checks will be processed as usual.  All outstanding checks will be paid against your available balance(s) as if no change had occurred.  Your new bank will contact you soon regarding any changes in the terms of your account.  If you have a problem with a merchant refusing to accept your check, please contact your branch office.  An account representative will clear up any confusion about the validity of your checks.

The FDIC’s secret list of problem banks had up to 117 institutions in the second quarter, a 30 percent jump from the first quarter, according to the agency.

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Like a hard core criminal receiving another guilty verdict, Citi has remained indifferent until now. Finally, the passing of a death sentence is revealing cracks in the criminal’s confidence.

Last night, Citi floated several trial balloons into the press:

• It might sell the company
• It might sell pieces of the company
• It won’t do either of these things
• The board will have an emergency meeting about the stock price today

The WSJ got the leak about Citi possibly selling pieces of the company or the whole thing. The Times got the leak that this wasn’t true. (Citi has a pet project going to discredit the WSJ after the paper said the firm was considering dumping Chairman Win Bisschof, which Citi violently denied. Perhaps the simultaneous leaked info and denials were designed to do this). Both papers got the story about the emergency board meeting today.

The purpose of the “might sell the company” leak, obviously, is to create hope for a takeover premium, which could briefly stop the stock plunge (the stock is up in pre-market). The purpose of the board meeting, meanwhile, is to decide what the company can actually do to stop the stock price from plunging.

But as Citi tries to stop the bleeding, the bank may actually be sealing its own fate. A takeover is almost certainly in the offing as Citigroup will never survive in its current form.

The government won’t let Citi collapse. They’ll force a sale to another bank, like Chase, B of A, Wells Fargo, or perhaps a stronger, foreign rival.

Or as with Wells Fargo and Wachovia, Citi will go to a better-connected rival. Nonetheless, the general economy will see no benefits from any such deal.

But the problem is that we’re just building a bigger time bomb. All of the above banks have very high leverage ratios. Fundamentally, they’re not in a significantly better position to withstand the crisis than Citi. The government will, perhaps, try to roll up all private banking assets into one super bank, which will receive unconditional government support. And yet, the potential failure of the super bank could blow up even the government’s balance sheet.

Yup, it sounds like something that goes BOOM right in the taxpayer’s face. Meanwhile, the bank goes right on buying time and selling lies.

Citigroup Inc., which fell 26 percent in New York trading today, is seeking to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter. The Wall Street Journal said Citigroup is considering a sale of the company.

The New York-based bank has discussed with the Securities and Exchange Commission and lawmakers its proposal to reinstitute the ban on bets that stock prices will fall, said the person, who declined to be identified because the discussions weren’t public.

Really?

Citigroup is blaming shorts when the short interest is under 3%. That’s ridiculous. If Citigroup does not understand this, it is a sign of incompetence. If Citigroup does understand how ridiculous their claim looks (and is), that is additional support for the desperation thesis.

Note the dividend. Citigroup is paying a dividend when it is clearly in need of capital . Is that a sign of arrogance or incompetence? That Citigroup is in this mess in the first place is clearly sign of incompetence somewhere, at some point in time. Current management will attempt to place that blame on Chuck Price, but the culture of greed, arrogance, and excessive risk taking, permeated the entire financial industry.

Well, it looks like they’re caught in another lie. This could be as dangerous as the lie that said Citi has no credit risk and therefore is a viable company which must simply clear some hurdles.

Senior executives say the company is financially strong and has ample financing options. Moreover, there are few buyers who would be willing to pay a price that Citigroup would want for its most valuable assets.

Where? The bank has losses greater than most national debts and has seen its share price crater to the low single digits. The bank has over a trillion dollars in Dark Assets as well as a sundry of off balance sheet wreckage. These buyers are as dark as the bank’s assets.

Senior executives feel that Mr. Pandit has followed through on plans to aggressively shrink the company and control costs. The bank has sold tens of billions of dollars’ worth of risky assets, improved its capital position and announced plans to eliminate 52,000 jobs by next June. “We are entering 2009 in a strong position, much stronger than we entered in 2008,” Mr. Pandit said in a speech to employees this week. “We will be a long-term winner in this industry.”

I feel compelled to inform senior management that Mr. Pandit is solving the wrong problem. While I am at it, I should also inform Mr. Pandit that he is straining credibility he does not have. The problem to be solved is how to generate revenue. If the bank were stronger in 2009 than it was in 2008, then shares would not be trading in the low single digits.

Still the lackeys say:

“The earnings power is there,” said Charles Peabody, a financial services analyst at Portales Partners. “It’s a question of getting through the credit issues.”

Well, Mr. Charles Peabody, may I ask where the bank has earnings potential? You are refuted by your own 10-Q statement.

As the environment for consumer credit continues to deteriorate, the Company has taken many actions to manage risks such as tightening underwriting criteria and reducing credit lines. However, credit card losses may continue to rise well into 2009, and it is possible that the Company’s loss rates may exceed their historical peaks.

Credit card losses, home mortgages, student loans, commercial real estate debt, and every other type of borrowing are all likely to deteriorate further as the depression sets in.

Citi also already played the game of cannibalizing your acquisition, but the fun came to a jarring halt when Wells Fargo outmaneuvered Citi for Wachovia. Now Citi is devouring itself, cutting 52,000 heads before Christmas and lying about solvency in  with no respect for investors who are pumping billions into a black hole.

Within the bank’s Manhattan offices, television screens have stopped displaying the company’s stock price. Traders have begun making jokes comparing Citigroup to the Titanic.

Just like the Titanic, there’s is nothing anyone could do but get away and watch it sink. Citigroup made it’s deal with the devil in the days of Chucky, and left the pieces to be picked up by others.

From July 10, 2007

Chuck Prince Citigroup CEO: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing“.

I leave it to you to decide whether or not this is the “last dance”.

It’s tough calling a top but I am going to try. I suggest the current trend is exhausted. My last “top call” was specially in regards to housing in the summer of 2005. Can lightning strike twice?

Notice how Chucky got his and got out, swam away, leaving the rest of us to sink or swim from the undertow of scuttled wreckage. It was no accident. If fact Citigroups Get Yous and Get Out, leaving everyone else to bail model, is a simple synopsis of the entire credit crisis.

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