Meredith Whitney Says Citi is a Goner; BBC Says Citi "Seeking ‘Emergency Cash’"

Meredith Whitney, the most accurate of the banking analysts (and even she has said she was too conservative on how bad the losses would be) has deemed Citi to be beyond redemption. From an interview in the (hat tip reader Dwight):

“Pandit and his executives are completely naive if they think the share price is not important” …

“Pandit is wrong, Citi will not be able to stay in its current form,” she said, adding that the banking giant must break itself up and sell off the pieces to raise capital and reduce its size…..

“Citigroup is in such a mess Stephen Hawking couldn’t turn this company around,” the money maven added. “It has lost the most money of all the banks, and has the greatest leverage.”….

“Citi is wrong if they say they are adequately capitalized. No bank is adequately capitalized today and Citi is no exception,” she said….

Whitney expects the Citi share price to keep falling until Pandit takes decisive action – but warned it has not got much farther to go.

“The company cannot raise capital, there are no buyers even if he [Pandit] wanted to sell Smith Barney,” Whitney concluded.

From the BBC report, “‘”:

Executives of Citigroup, one of the biggest banks in the US, are in emergency talks with the US Treasury to gain much-needed funding, reports say….

Chief executive Vikram Pandit told employees on Friday that the firm did not want to change its business model, Reuters reported, citing two employees…

But Sean Egan, analyst at ratings agency Egan-Jones Ratings, said, “Citigroup needs a deep-pocketed investor that is ready, willing, and able to step up in the next few days.”

“The only one who comes to mind is the government,” he said, adding that $50bn might ne needed.

In a bid to reassure investors, Citigroup is running advertisements in US and international newspapers on Sunday underlining its stability.

The ads have been widely reported, and suggest that the bank simply does not get how bad its situation is. Most of the comments about Citi’s supposedly solid finances overlook the fact that it has over $1.1 trillion in off balance sheet assets (versus official footings of $2.2 trillion). Even the usually skeptical hews to the party line:

Citi is in no danger of bankruptcy. It recently received a $25bn investment from the Treasury and its credit is backed by the Fed. Its counterparties are not scrambling to put their business elsewhere, as was the case with Bear Stearns and Lehman.

Moreover, the Fed, which was involved in trying to save Bear Stearns and find strategic alternatives for Lehman, has taken a more hands-off approach, say people familiar with the matter.

And per the comment about the Fed above, the authorities might not get it either. Several media outlets have said the authorities’ ability to act is constrained by the fact that Citi is not in really bad shape.

While the press reports continue to say there are no signs of deposit withdrawal, the depositors at real risk are not most retail customers, but business customers, particularly small to mid-sized companies who find it operationally too difficult and costly to spread deposits so as to keep the amount at any one bank below the FDIC limit. It is only one data point, and thus should be treated with caution, but said that his bank was seeing significant inflows from Citi customers, as his bank did when WaMu was floundering. Similarly, another source of exposure is foreign depositors in countries with limited deposit insurance.

While there appears to be no immediate trigger for a crisis, the plunge in the stock price has put an uncomfortably bright light on the bank. If Citi flails around for too long with no remedy, the worries will on themselves.

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20 comments

  1. Steve

    I’d like to know how much assistance Citi is already getting through the Fed’s myriad `liquidity’ programs, and where that cash has been going.

    Anyway, Reuters reports that the White House is denying that talks are taking place. Which means nothing.

  2. ndk

    The widespread DON’T PANIC coverage smells rotten indeed.

    But what the heck could be done, anyway? This sucker is titanic, especially with the off-balance sheet items. If we don’t rescue them, the losses are distributed amongst a staggering number of depositors, 64% of whom are international. If the U.S. government takes Citi or any significant portion of it onto its balance sheet, whether through the Fed, Treasury, or FDIC, the gov’t becomes even more insolvent and is likely to go bankrupt in some form sooner. Oh, yeah, and CDS.

    I don’t see a solution, and Whitney(whom I adore) doesn’t propose one.

    This monstrosity is too big to save. The best any of us can do individually is to hide from the carnage.

  3. ndk

    has a good visual representation of the issue here. And, we haven’t even started talking about their other creditors. This is horrendous.

  4. Anonymous

    Sandy Weill created a bank that never slept, because it
    spanned the globe. It was like a 25,000 mile long
    rattlesnake. Normally, when you pull the tail of a
    Rattlesnake, you’re going to get sick, or die. But, when it’s 25,000 miles long, you can cut off the tail,
    build a fire, roast it, eat, take a nap, and walk away.
    By the time the head arrives to bite you, you’re long gone.

  5. TallIndian

    I fondly recall the last time Citi was close to death, the early 1990s.

    At that time, Citi was getting hammered by massive prepayments on their mortgages.

    Was it mere 20 years ago, that the biggest risk facing the Street was people paying the face value of their mortgage loans too early?

  6. Blake

    ermm.. Stephen Hawking is a financial industry guru? who knew… I thought the scope of his expertise was limited to theoretical physics.

  7. satan

    Ok, so far Citi has consumed over 75 B of private equity, 25 B of government infusions and god knows how many billions of temporary Fed financing. On the top of that they will now get 100 B. For 200B of capital, you could start a new citigroup with adequate capital margins and fractional reserves.

    This is insanity!!!

  8. satan

    Who is next after Citi, I bet that BoA and WFC are circling the drain but have kept up appearances through creative accounting.

  9. ndk

    For 200B of capital, you could start a new citigroup with adequate capital margins and fractional reserves.

    Remember, good satan, that we do not save Citi for Citi. We save Citi for everyone foolish enough to lend to them, deposit money with them, or write CDS contracts on their head.

    This is insanity!!!

    Ya got that part right.

  10. Anonymous

    “I thought the scope of his expertise was limited to theoretical physics.”

    it is…with a concentration in big bangs and black holes,

    both applicable to this situation.

  11. satan

    At this rate, we won’t have a functional economy left..

    //Remember, good satan, that we do not save Citi for Citi. We save Citi for everyone foolish enough to lend to them, deposit money with them, or write CDS contracts on their head.//

  12. Richard Kline

    C is like the Phantom of the Opera, it only continues to exist so long as one-third or more of itself remains veiled from public knowledge. Pandit knows that the Guvmint types will not voluntarily yank away the veil under any circumstancess, so he believes himself safe, “The risk [of discovery] is contained].” People who are owed money by C, or who owe them money still have real world exposures, though, and they are changing the environment.

    No proximate cause? C has such exposure to China Syndrome MBSs, especially in its private SIV, that if those are not sold at par, or finish at or near par in the due course of time they are capital dead many times over. No private buyers will touch the rot, and Paulson just announced that the Guvmint won’t be buying. [The whole idea of Tres buying MBSs was exactly to save C and the other dead dinos.] C cannot stand still given ongoing market declines, it must have continuing capital infusions in the $25-50B range, quarterly, for several years, if it is to continue to exist. Congress just turned Paulson down on further access to Play Dough of that volume. The consequence of those two announcements in DC was that the capital markets would assuredly turn against the most exposed behemoths, both because the latter were known to be rotting zombies without further Guvmint cosmetic applications, and because half or more of the Big Boys have to be killed off for the potential survivors to in fact survive on the decidedly smaller pool of available investment capital. The context after those two announcements is roughly comparable to February of this year, when the number of players surely exceeded the volume of new capital. C is the most vulnerable player, that’s all, and the capital markets are edging away.

    The Phantom of the Index staggers, lurches, reaches for the taxpayers throat, and . . . .

    Full disclosure: C just sent me a three paragraph letter saying that they would raise my rate to 29.9% in the event of a single late payment or default, not that I’ve ever missed on the product that they bought from someone else, despite their constant games with the due date. Or I could close my account in the next billing cycle and pay in full (and for the record I could do that, the amount is small, and I’m net in cash). I’m hoping that they fail, ’cause I’d rather do business with someone else.

    And I’m with Satan 533 above, the capital sucked up to die by C over the last year and a half could have created a comparable new, _solvent_ institution. This is the kind of waste that comes from trying to reanimate the dead-but-not-gone; a crime against nature, in other words. The real problem of a failure by C are the systemic risks, so Paulson is barking orders into the speaking tube, “Feed them more taxpayers children, NOW I said!” But it’s useless. In the movie, the raging zombies burst into the executive suite, and chew Paulson’s face off. In reality, he’ll get on a private jet and fly away with his loot to comfortable obscurity. *blecchhh*

  13. Richard Kline

    C is like the Phantom of the Opera, it only continues to exist so long as one-third or more of itself remains veiled from public knowledge. Pandit knows that the Guvmint types will not voluntarily yank away the veil under any circumstancess, so he believes himself safe, “The risk [of discovery] is contained].” People who are owed money by C, or who owe them money still have real world exposures, though, and they are changing the environment.

    No proximate cause? C has such exposure to China Syndrome MBSs, especially in its private SIV, that if those are not sold at par, or finish at or near par in the due course of time they are capital dead many times over. No private buyers will touch the rot, and Paulson just announced that the Guvmint won’t be buying. [The whole idea of Tres buying MBSs was exactly to save C and the other dead dinos.] C cannot stand still given ongoing market declines, it must have continuing capital infusions in the $25-50B range, quarterly, for several years, if it is to continue to exist. Congress just turned Paulson down on further access to Play Dough of that volume. The consequence of those two announcements in DC was that the capital markets would assuredly turn against the most exposed behemoths, both because the latter were known to be rotting zombies without further Guvmint cosmetic applications, and because half or more of the Big Boys have to be killed off for the potential survivors to in fact survive on the decidedly smaller pool of available investment capital. The context after those two announcements is roughly comparable to February of this year, when the number of players surely exceeded the volume of new capital. C is the most vulnerable player, that’s all, and the capital markets are edging away.

    The Phantom of the Index staggers, lurches, reaches for the taxpayers throat, and . . . .

    Full disclosure: C just sent me a three paragraph letter saying that they would raise my rate to 29.9% in the event of a single late payment or default, not that I’ve ever missed on the product that they bought from someone else, despite their constant games with the due date. Or I could close my account in the next billing cycle and pay in full (and for the record I could do that, the amount is small, and I’m net in cash). I’m hoping that they fail, ’cause I’d rather do business with someone else.

    And I’m with Satan 533 above, the capital sucked up to die by C over the last year and a half could have created a comparable new, _solvent_ institution. This is the kind of waste that comes from trying to reanimate the dead-but-not-gone; a crime against nature, in other words. The real problem of a failure by C are the systemic risks, so Paulson is barking orders into the speaking tube, “Feed them more taxpayers children, NOW I said!” But it’s useless. In the movie, the raging zombies burst into the executive suite, and chew Paulson’s face off. In reality, he’ll get on a private jet and fly away with his loot to comfortable obscurity. *blecchhh*

  14. Anonymous

    Well, Citi is not going to be allowed to “fail” in the way Lehman did. It’s going to be a slowly managed collapse to avoid destroying Washigton’s own ability to borrow overseas.

    The larger significance is Citi is one of NYC’s rapidly vanishing claims to world financial preeminence.

    One by one the internally rotted-out Ivy League-NYC Ponzi structures are imploding, just like obsolete skyscrapers being demo’d one after the next.

    Who with enough intelligence to have lots of money would ever again trust the toxic human waste dump that “New York” has mutated into? At this point it only represents overweening arrogance, unlimited personal greed accompanied by unlimited mendacity and amoral dishonesty.

    Those aspects are not mitigated by the slightest degree of genuine excellence in anything.

    “New York, New York”, your day is past, your goose is cooked. Stick a fork in you, you are DONE!

    The faster John Carpenter’s prophetic vision is realized the sooner things will improve for real Americans.

    Here sneering at you from Flyover Country.

  15. Anonymous

    What stood out for me:

    “No bank is adequately capitalized today”

    So all banks are effectively bankrupt. That could be a bad thing.

  16. Fred

    This is Obama’s first test. His guy Tim Guithner will need to sign off on this given his current role (and his new role). Let us see if there is a creative and enlightened approach. But make no mistake this is all Obama. Either way the markets will likely rally for any type of bailout/rescue.

  17. Mara

    Tim Geithner is probably thinking real hard if he’ll actually be there on the first day of work.
    I can imagine Vikram Pandit’s phone ringing:
    “Hello, Vikram?”
    “Yes?”
    “This is Prince Alwaleed bin Talal. Remember? That guy who bought C at a “bargain” price, only to see it go down another 15% or so. Better make sure C makes it or you’ll be digging my next oil well with a tea cup”
    “Uh, sure”
    There was a much more graphic, Sporano-like version which I deleted in deference to good taste, but you get the idea. Pandit might be trying to bluff his way into the govt folding first, but with such a crap balance sheet, even the Feds must be saying “don’t bullshit me son”.

    Citi is a shambles, so are the feds. As a nation we cannot borrow anymore. Excuses to not let the dead lie where they are can no longer be argued. CDS blowing up? Make them unenforceable. Overseas depositors? Sorry, no FDIC for you. Hey, that’s the line I’d be getting from Iceland, Hungary, and a host of other places.

  18. Anonymous

    A friend of mine in Japan said there were long lines of people at Citi ATM terminals last week. I don’t know what kind of deposit insurance Japan offers.

  19. m donner

    this should help:
    Citi plans to expand and hire 1,000 more workers in the Philippines next year despite the thousands of jobs it plans to cut overseas, the Manila Standard Today newspaper reported Monday.
    “We’re investing in systems and processes, and next year we will have another 1,000 (workers),” Citigroup’s country business manager Mark Jones was quoted as saying.
    He added that the new jobs to be created in the Philippines would be for Citigroup’s call center and financial reporting operations.
    “There’s a whole lot of activity moving in the Philippines as we grow our businesses. Citi is moving more equity in the Philippines. If you look at the business, we’re repositioning globally,” Jones said.
    someone said earlier how they might want to punt on this until the auto help gets resolved. but the market is expecting something tonite or tomorrow am latest.
    not to mention Paulson flip flopping around.. that should calm the markets.

  20. Anonymous

    So they have now taken $45 BILLION of taxpayer bailout money. Here is the good news that will send you over the top. They have a $400 MILLION deal to place their name above a stadium(I SAY OH HELL NO).
    The real kicker is apparently they have set aside approx. 21 BILLION in employee BONUSES(OH HELL NO YOU DON’T). We just gave up the money for the employee BONUSES! Can you say LIVID or BS. or FRAUD? or EMBEZZLEMENT? Is there a word big enough? anybody? I KNEW YOU COULD.

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