January 19, 2009 – 5:29 pm

Like an old and ancient oak tears apart during a lightning storm, Citigroup, the bank that Sandy Wile built, has split in two under the crushing force of its own enormous weight. Citigroup, like the Royal Bank of Scotland, has suffocated under the so-called “bank supermarket model.” In actuality, it was not a model for banking at all; rather, it was only a thinly veiled cover for those Sandy Wiles would use to conquer the world. Witness:

Citi on Friday outlined a plan to breakup its much-maligned financial supermarket model, after reporting a fourth-quarter loss of $8.29 billion, or $1.72 a share. Revenue declined 13% to $5.6 billion from large writedowns and losses in securities and banking. Results included $6.1 billion in net credit losses and a $6 billion net reserve build for future loan losses.

So far no one has conquered the universe. Lies and misleading aside, Citigroup has surrendered in its quest to do so. Not so surprisingly, CEO Vikram Pandit assures the world of how committed he is to returning the bank profitability, but his words smell like a dungheap.

Citi CEO Vikram Pandit acknowledged that the results were “clearly disappointing,” “Our results continued to be depressed by an unprecedented dislocation in capital markets and a weak economy. However, a number of our core customer franchises continued to perform well as Citi’s customers remain active and engaged with us. We continued to make progress on our primary goal in 2008—which was to get fit. We significantly strengthened Tier 1 and structural liquidity, we reduced our balance sheet, expenses, and headcount. We also made significant progress in reducing risk from our balance sheet. Our legacy assets declined to approximately $300 billion, over $300 billion of assets are now covered by a loss sharing arrangement, and we added $14 billion to our loan loss reserves. We expect reduced volatility from marks in 2009 as a result of actions we’ve taken to reduce risk, and reclassify certain securities and loans from trading and available or hold for sale to hold to maturity or held for investment.

I say enough already, but the song and dance led by Pandit goes on with the enabling financial media co-conspirators. Witness:

Regulators are growing increasingly concerned that Citigroup’s board is struggling to regain investors’ trust after the company was compelled to seek not one but two financial lifelines from Washington.

Regulators are urging Citigroup to create an independent chairmanship and replace several long-serving directors, a move that would enable Citigroup to present a new face to Wall Street. Having Mr. Parsons replace Mr. Bischoff would give the board more independent oversight and, perhaps, a more engaged leader. Two or three more board members might also be replaced as part of the move.

Regulators are conning investors into having confidence in an insolvent bank. Citigroup has gone bust, and regulators should be forthcoming about the true nature of the situation.

Vikram Pandit has no intentions of returning the bank profitability. There’s no profit in doing that. Of course, Pandit would prefer that investors believe the bank could be profitable again, but the credit crisis is still in its infancy. Thank Citigroup because the crisis was largely fueled by their high-octane torching of mortgage backed securities.
Banks and investment banks do poorly in a poor credit environment. With total net write-downs of $5.6B, lone loss reserve buildup of another $6.1B, and the selling of the Smith Barney unit to Morgan Stanley, all indications are that Citigroup is dressing up for the farewell dance, not a return to profitability.
Selling 51% of Smith Barney only makes sense if Citigroup is going to sell 100% of Citibank (i.e., the rest of the firm) as well.
Selling Smith Barney doesn’t solve any of their problems. It neither raises any capital to speak of, nor does it unload bad assets. And why sell now? Supposedly they are going to book some $10 billion in gains on the sale, but so what? No one is fooled into thinking that’s real capital right? Valuation on the brokerage unit is got to be at all-time lows!
In fact, by selling Smith Barney, Citi is giving away deposits. Many Smith Barney clients use Citibank deposit accounts as a sweep vehicle. I haven’t seen numbers on this, but a friend of mine who works confirms this is very common.
Citigroup isn’t doing this to focus on its classic banking division, because Citi has been more of a investment and commercial bank than a retail bank for at least 15 years. This would be reversing a generation’s worth of “progress” toward transforming Citibank. Citi doesn’t have the branch network to suddenly become a serious competitor with Bank of America or Wells Fargo.
But it all starts to make sense if you assume that the rest of Citi is also for sale. Say the buyer is Goldman Sachs, who doesn’t want Smith Barney’s 14,000 brokers or their back office or their compliance headaches, etc. Goldman just wants the big fat bank and its deposit base to give them secure funding. To me I’d rather see Goldman buy up smaller banks with less baggage, but maybe Goldman expects some government help?
I just have the feeling there is more going on here than just Smith Barney.
Yeah,  same old refrain. It’s more likely that Goldman Sachs or some other insider will get all that glitters while the taxpayer once again gets the shaft.
Citibank has already collected $45B under the TARP and received taxpayer guarantees for 90% of another $360B ($250 billion). One way or another, the taxpayer gets the shaft.
<>
  1. 2 Trackback(s)

  2. Jan 21, 2009: Bank-Implode! » Citigroup - $601.2B+$125B=$726.2(TARP-$25+$20B)
  3. Feb 24, 2009: Bank-Implode! » Citi Crumbles

Post a Comment