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HomeJudge Huvelle: “Why Would I Find This Fair and Reasonable?”
Posted by Larry Doyle on August 18th, 2010 2:09 PM |
Wall Street has a funny way of meting out justice. All too often, investors are left with little more than ’caveat emptor’ when it comes to engaging large Wall Street institutions. Beyond that, the SEC and FINRA are often critiqued for being more closely aligned with the industry than with investors. I was reminded of this fact when reading last week that the SEC settled with Citigroup for a token $75 million regarding Citi’s disclosure, or lack thereof, of its sub-prime holdings in the midst of our economic crisis.
My ’sense on cents’ view of the world made me think that Citi got off awfully cheap for having misrepresented its financial positions. If $75 million is all it costs for misrepresentation of financial documents, then America should ready itself for a whole lot of misrepresentation. Thankfully, a judge threw a quick yellow flag on the field while indicating that this play needed further review. (more…)
Citigroup: The Blind Leading the Blind
Posted by Larry Doyle on April 7th, 2010 1:28 PM |
When in doubt, hire a consultant.
When something fails, blame the consultant.
Shirk responsibility and pass the buck.
When will somebody with a set of balls on Wall Street stand up and take responsibility for the massive failures of risk management and business execution which led to the economic crisis which brought our country to its knees? (more…)
Citigroup Still Milking Uncle Sam
Posted by Larry Doyle on September 16th, 2009 11:42 AM |
A number of banking institutions have repaid Uncle Sam’s TARP funds. The truth be told, a few of these institutions never wanted Uncle Sam’s money in the first place. Now we learn that the biggest financial beneficiary of Uncle Sam’s largesse, that being Citigroup, wants to begin discussions for Uncle Sam’s exit.
Be mindful that Uncle Sam (that’s you and me, boys and girls) owns upwards of 40% of Citi and that this giant would be dead and buried without Sam’s bailout. If I am Citi, I would also like to get out from under the grand old Uncle’s watch. The Wall Street Journal highlights this story in writing, Citigroup Explores Bid to Pare U.S. Stake:
Citigroup Inc., eager to shed the stigma of being a ward of the state, is working on a plan to reduce the U.S. government’s 34% stake.
Top Citigroup executives have been devising plans for a possible multibillion-dollar stock offering in which the New York company would issue new shares to the public, while the Treasury Department would sell at least a portion of its Citigroup holdings, according to people familiar with the matter.
Citigroup hasn’t held in-depth talks with the government. Over the weekend, Citigroup called a Treasury official and said the company wanted to start talking about paring down the Treasury investment, according to people familiar with the matter. On the call, Citigroup officials said they planned to raise outside capital in order to repay the outstanding bailout funds. Treasury officials responded to Citi that they didn’t object to the company paying back Washington as long as Citi first raised offsetting capital, these people said.
![[citigroup bailout]](http://s.wsj.net/public/resources/images/MI-AY766_CITI_NS_20090914190901.gif)
It is regrettable that the WSJ did not juxtapose this story of Citigroup’s grand vision to regain its independence with the fact that Citigroup continues to milk Uncle Sam via the FDIC-backed debt program. What is that?
The FDIC-backed debt allows Citigroup to issue debt which is effectively government guaranteed. In the process, Citi generates a significant cost savings because this debt falls into the ‘heads we win, tails you lose’ category. How much of this ‘milk’ did Citi just suck? Try a nice steady stream totalling $5 billion. The Financial Times sheds some light on this ’stall’ in writing, Citi Raises $5 Billion in Bail-Out Bonds:
People close to the situation said Citi was in early talks with the US Treasury over a plan that would enable the company to raise capital by selling shares and enable the authorities to pare their holding.
But Citi’s decision to sell two and three-year bonds backed by the Federal Deposit Insurance Corporation could reinforce the perception that the bank, which has received $45bn in federal aid, is still not back to full health.
The hypocrisy of it all is par for the course, but for Citi, this milk tastes Mmmm…Mmmmm good!!
LD
Uncle Sam Winks Again at Citigroup’s Credit Card Fees
Posted by Larry Doyle on August 20th, 2009 3:14 PM |
When a company, which is a ward of the state, increases credit card fees can it be said to be the equivalent of a tax increase? I believe it can. In that vein, Citigroup is raising taxes on its credit cards by initiating annual fees. The Wall Street Journal highlights this development and reports Citigroup to Initiate New Annual Fees on Some Credit Cards:
Citigroup Inc. is instituting annual fees on some current credit-card accounts in an attempt to offset strict new legislation that could dent its profits.
The move comes on the heels of several warnings from the banking industry, which has said that issuers would be forced to rewrite the playbook on plastic because new credit-card laws would take a bite out of their income.
Rates of between 20% and 30% aren’t sufficient for income purposes? The fact is, current card holders are paying for the undisciplined lending practices of the bank over the last 5 years.
These laws include new limits on interest-rate increases on existing balances and greater disclosures.
The legislation was written to prevent abusive practices on the part of the banks. The fact that it allows for the implementation of practices such as these paints the legislation as the equivalent of a ’show trial.’ (more…)
Uncle Sam:Geppetto as Citi and BofA:Pinocchio
Posted by Larry Doyle on July 16th, 2009 1:32 PM |
If you did not think we are entering into a Brave New World of an Uncle Sam economy, then today is a day which should help change your mind.
Independent Wall Street firms, such as Goldman Sachs and JP Morgan, would like a return to business as usual. Their outsized profits are nothing more than “to the victors go the spoils.” They will fight and lobby to make sure they get to take home these 
profits in the form of compensation.
Meanwhile back in the toy shop, Geppetto (in the form of Uncle Sam) is pulling the strings and watching Pinocchio (in the form of Citigroup and Bank of America) dance along. While Geppetto has been exceptionally busy, the taxpaying public has been kept very much in the dark. We see evidence of Geppetto’s ‘dark workroom‘ on three fronts today.
1. The Wall Street Journal offers Lawmakers Spread Blame on Merrill Deal:
House lawmakers lambasted former Treasury Secretary Henry Paulson and Bank of America Corp. Chief Executive Kenneth Lewis on Thursday, suggesting officials looked the other way as major mistakes at the bank required a $20 billion bailout of the firm at the expense of taxpayers.
“While all of this was going on, the American people, investors and the Congress were kept in the dark,”(LD’s highlight) said Rep. Edolphus Towns (D., N.Y.), suggesting negotiations over the bank completing its deal for Merrill Lynch & Co. was a “good, old-fashioned Brooklyn shakedown.”
Rep. Dennis Kucinich (D., Ohio), citing internal Federal Reserve documents obtained by the committee, said Mr. Paulson and Fed Chairman Ben Bernanke ignored evidence that bank management had withheld material information from shareholders, as well as indications that Mr. Lewis’s management of Bank of America “was seriously deficient.”
While Paulson is being grilled, there is little doubt that he believes he did what was in the best interest of the country and the economy – - if not necessarily the interests of Bank of America shareholders. Paulson offered that he was not qualified to provide a legal opinion on his engagement with Lewis.
2. If there were ever any doubt about Geppetto’s lack of confidence in Ken Lewis (aka Pinocchio), it is brought to bear today by news of a ’secret regulatory sanction’ imposed upon him and the BofA board. The WSJ highlights U.S. Regulators to BofA: Obey or Else:
Bank of America Corp. is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management, according to people familiar with the situation.
Rarely disclosed publicly, the so-called memorandum of understanding gives banks a chance to work out their problems without the glare of outside attention. Financial institutions that fail to address deficiencies can be slapped with harsher penalties that include a publicly announced cease-and-desist order.
The order was imposed in early May, shortly after shareholders of the Charlotte, N.C., bank stripped Chief Executive Kenneth Lewis of his duties as chairman. Bank of America faces a series of deadlines, some at the end of July and others in August, these people said.
3. In the final act of today’s puppet show, we also learn from the Financial Times Citi Close to Secret Deal with Regulator:
Citigroup is close to a secret agreement with one of its main regulators that will increase scrutiny of the US bank and force it to fix financial, managerial and governance issues.
The proposed agreement requires, among other things, that Citi strengthens its board and governance, improves asset quality, better manages expenses and provides more information to regulators on its capital and liquidity, these people added.
The regulator’s action highlights concern over Citi’s financial health, governance and the strength of its management team, led by Vikram Pandit, chief executive. The FDIC is known to be frustrated with the slow pace of Citi’s “toxic” assets sales, its losses and the lack of commercial banking experience at the top.
What are we to learn from all of these developments? Very simply, do not accept anything at face value at this stage in our new economy. There is a reason why Geppetto is working in the dark. That is, the embedded losses in these institutions would sink these firms if not the entire economy.
Historical measures of value and economic behavior need to be looked at in the context of how Geppetto is pulling the strings!!
Enjoy the show!!
LD
Mr. Geithner, “I Want Some More”
Posted by Larry Doyle on March 30th, 2009 5:15 AM |
Poor Oliver Twist faced the wrath of the workhouse master when he asked for more soup. Why is it that certain banks do not face similar wrath when they go back to Uncle Sam for more “bread” with the soup?
They want more??!!
I have commented extensively on the banks’ need for more capital. Bernanke and Geithner now share that the banking industry has significant embedded losses which need more capital: Geithner Says Some Banks to Need ‘Large Amounts’ of Assistance.
Over and above this fact, it is now widely speculated that significant revenues at certain banks (Citi and BofA) were generated in the last few months via unwinding exposure to AIG. In short, AIG entered into massive transactions with these banks to eliminate further exposure on pre-existing trades. In the process, AIG (taxpayers) incurred larger losses while these banks generated large profits. Why would AIG do this? It’s part of a “going out of business sale” and executed with a “volume discount.”
As an investor, though, am I supposed to think that bank revenues are improving because of positive trends in the economy? No way.
Risks remain extraordinarily high. To that end, I STRONGLY encourage people to listen to the audio recording or the podcast of my interview with Michael Panzner from last evening. Michael has had the economy and the market called for the last few years. His books are comprehensive in laying out a sobering reality and potentially a daunting future.
LD
Send in the Clown
Posted by Larry Doyle on March 26th, 2009 5:15 AM |
In the process of a business transaction, have you ever encountered the sudden appearance of another interested buyer? Where does this other mysterious buyer suddenly come from? How is it that the new buyer appears at the most inopportune time? If you thought you were the primary buyer, do you feel as if your bid is being shopped? In business, this appearance of a supposed late buyer is known as “send in the clown!”
This part of the circus act is played out on Wall Street all the time. As we enter into the largest liquidation sale in the history of Wall Street, the big fellow with the red nose, floppy feet, baggy pants, and squeaky voice has just shown up, in the form of Citigroup and Bank of America’s bank portfolios. (more…)
Pinnacle Receives Auction-Rate Securities Settlement; What about Every Other ARS Investor?
Posted by Larry Doyle on August 31st, 2009 12:34 PM |
How can auction-rate securities investors receive liquidity from the remaining $165 BILLION in frozen ARS securities?
Let’s review a recently announced settlement that Pinnacle Airlines negotiated with Citigroup. Bloomberg reported this morning, Pinnacle Airlines Flight From Auction Rate Costs $16 Million. Pinnacle is under severe cash constraints with a $109 million note maturing in early 2010. Bloomberg provides details how Pinnacle received liquidity along with a call option to repurchase the ARS from Citigroup at the same price it is selling the ARS. What does it all mean? Bloomberg highlights:
Sense on Cents asks the following questions:
1. Would Citigroup offer this settlement to every other investor to which it sold ARS?
2. What do ARS investors who are regular readers of Sense on Cents think of this settlement?
3. Does this settlement preclude investors from participating in a larger settlement that may include penalties?
4. Why shouldn’t other banks, brokers, and money managers who sold and marketed ARS in a fraudulent fashion be mandated by the courts to provide a temporary liquidity facility similar to this? If these entities, which engaged in the fraud, maintain they can not ‘afford’ this settlement, isn’t that a de facto admission of guilt and an ongoing perpetuation of the fraud?
When will ALL investors in auction-rate securities receive an expedited settlement which leads to full and total restitution? The feet dragging on behalf of issuers, banks, regulators, and the courts is a gross injustice of massive proportions.
Perhaps the claim embedded in the Amerivet Securities complaint against FINRA can help to unlock the ARS mess and expose the incestuous relationship between the financial self-regulator and Wall Street. At that point, perhaps ARS investors may move closer to receiving their funds and some justice from this fraud.
LD
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Posted in ARPS, ARS, Auction Rate Securities scandal, Citigroup, General | 2 Comments »