Rumor: Citi bank looking for funding.

[GRG55]

Re: Rumor: Citi bank looking for funding.

Our information is that the reason the news keeps getting worse is that no one at Citi seems to understand the macro environment that is driving the losses: a debt deflation and all that goes with it. When the Japanese commercial banks started to experience a post credit bubble demand implosion that hit from the consumer, business, and finance sectors all at once, the "worst case" firebreaks kept getting breeched. They lacked the imagination and understanding of the nature of the problem they were facing. It was a case of institutional blindness: they simply could not collectively comprehend the object in front of them and take rational action to avoid it. They have been in a demand deficit position ever since, and have counted on the US and China for demand. The lack of obvious sources of demand do support deflationists worries. But do not underestimate the ability and willingness of governments to maintain a money supply in excess of the all-goods supply.

One of the challenges these guys must be facing reminds me of conversations I had with investors when I was raising money for a company I was running in 2003. After so much continuous price appreciation, the investors' mindset was that price depreciation was going to reverse or at least stop soon. We were picking up over 100 customers per quarter, and this during the worst tech depression ever and we were way out ahead in our sector as measured by independent analysts (e.g., Dell'Oro Group), so investors could not understand why terms were coming in so low. In order to get investors to accept new funds at market terms I had to get them to understand that in a post bubble asset price deflation, "We cannot grow the company as fast as the market price for similar companies is falling." What if there is no one at Citi to explain the dynamic of the collapsing asset bubble, of which they are now the center? What if they believe that "the worst is behind them" instead of in front of them? If that is their thinking, then this may be "the kitchen sink" to the best of their understanding but a bathtub and then a swimming pool are yet to come because, as I have warned: The problems are caused by falling loan collateral values, and housing price depreciation has not yet started in earnest. All the price depreciation to date has occurred in the absence of rising unemployment. Now unemployment is rising and the real housing debacle begins.

This reads much like the reports that came out of Chernobyl after Reactor 4 exploded. Management and staff from the power plant remained in an extended state of disbelief, apparently unable to comprehend the complete destruction of the reactor, despite seeing pieces of the reactor containment building strewn around the site, because the destruction of a reactor was an event that was "impossible" in their minds.

Another case of "I'll see it when I believe it" going on at Citi and elsewhere?

[Jim Nickerson]

Re: Rumor: Citi bank looking for funding.

Jim,

I don't pay for reports.

The single individual I have the most respect for w/ respect to analyzing Citibank: Minyan Peter on Minyanville.

The article that crystallized my thinking about this person:

http://www.minyanville.com/articles/.../index/a/14318

Minyanville article list:

http://www.minyanville.com/library/s...contrib_id=106

You can also look at Mish - he does a decent summary of a number of the more obvious points.

Thank you, C1ue.

[Rajiv]

Re: Rumor: Citi bank looking for funding.

Citi is looking at 9 digit losses; to date Citi has only written off $21B or so.

Isn't $1B (1,000,000,000) ten digits, and not 9?

[c1ue]

Re: Rumor: Citi bank looking for funding.

Isn't $1B (1,000,000,000) ten digits, and not 9?

Quite true - I'm thinking in units of 1000 again.

To be clear - Citi's losses are going to be in the $100B range - 12 digits.

To date we're in the lower middle 11 digit range.

[touchring]

Re: Rumor: Citi bank looking for funding.

Quite true - I'm thinking in units of 1000 again.

To be clear - Citi's losses are going to be in the $100B range - 12 digits.

To date we're in the lower middle 11 digit range.

I've no doubts that their losses can reach $100B range by the end of the recession, but what are the losses actually made up of? Since subprime is about $300B total, i suppose?

[metalman]

Re: Rumor: Citi bank looking for funding.

They are too early, but the decision is probably political and strategic, nothing much to do with investment.

this helps explain the outcome of taiwan elections. it was a close race between the pro-unification party and the pro-independence party. could be a coincidence but china does stuff like this all the time around elections in taiwan. 28 hours seems like a long time for these two to be staring each other down in the strait.

Report: Chinese ships confronted Kitty Hawk
Kyodo News Service
Posted : Tuesday Jan 15, 2008 16:08:22 EST

TAIPEI — A Chinese attack submarine and destroyer shadowed U.S. warships in November in the Taiwan Strait, sparking a 28-hour standoff that brought the group to a battle-ready halt in the tense waters, a report in a Taiwan daily said Tuesday.

http://www.navytimes.com/news/2008/01/kyo_china_080115/

[c1ue]

Re: Rumor: Citi bank looking for funding.

I've no doubts that their losses can reach $100B range by the end of the recession, but what are the losses actually made up of? Since subprime is about $300B total, i suppose?

I'm expecting final tallies of losses to be roughly 1/3 subprime, 1/3 Alt-A, and 1/3 Option-ARM. And 1/3 credit card. :rolleyes:

Perhaps I should say $135B in losses.

Most of what we've seen so far are early subprime losses; I expect the rest of the subprime to roll through in the next year, at which point the Alt-A's (beginning in June) will take over.

[c1ue]

Re: Rumor: Citi bank looking for funding.

this helps explain the outcome of taiwan elections. it was a close race between the pro-unification party and the pro-independence party. could be a coincidence but china does stuff like this all the time around elections in taiwan.

Never a coincidence.

I don't see China saying: "I won't shove money into Citibank if you don't back off Taiwan, Uncle Sam"

But I can see China saying: "I'll send all new dollars to Africa if you let Taiwan declare independence"

[touchring]

Re: Rumor: Citi bank looking for funding.

Oh yes, does anyone know if there would be a possibility of a credit card crunch? I read somewhere that credit card debt is also collaterized. :eek:

[c1ue]

Re: Rumor: Citi bank looking for funding.

Oh yes, does anyone know if there would be a possibility of a credit card crunch?

It will happen.

[c1ue]

Re: Rumor: Citi bank looking for funding.

From Minyanville:

Minyan Peter swung by MVHQ yesterday and noted that in the fourth quarter alone, Citigroup reduced its balance sheet by roughly the total assets ($176 billion) of SunTrust. Poof! Imagine that?

Talk about a lending contraction...

On the other hand, this $176M is not so much larger than Citi's SIV exposure alone - and Citi took on $49B of that exposure ONTO their balance sheet in the 4th quarter...

http://www.marketwatch.com/news/stor...3C15A74AC8C%7D

[whitetower67]

Re: Rumor: Citi bank looking for funding.

In my view, obtaining cash from the Arab oil states is, literally, one step above going to Tony Soprano for a loan -- dead-end desperation fueling somone to seek cash from a criminal element at usurious rates of interest.

I simply can't believe that Citi remains truly solvent.

[whitetower67]

Re: Rumor: Citi bank looking for funding.

I'm expecting final tallies of losses to be roughly 1/3 subprime, 1/3 Alt-A, and 1/3 Option-ARM.

There is this table from Credit-Suisse. It looks like the subprime issue will peter-out soon but future losses will mostly be option-ARMs and prime-ARMs.

[c1ue]

Re: Rumor: Citi bank looking for funding.

WhiteTower,

Don't forget that it takes a minimum of 6 months after initial default for an actual foreclosure to occur, and up to 18 or even 24 months for the foreclosure to complete.

Thus the 'subprime' wave will not complete until mid 2009, with the first big waves starting in March 2008.

Alt-A are pretty consistent all throughout, but Option-ARMs will have a spike earlier than 'reset' as the reset dates are assuming the LTV limits are not hit first.

2009 looks like the start of a big galactic core black hole...