UPDATE: 01-16-09" Citigroup Splits Into Two After Losing $8.3 Billion"

As reported by Reuters via CNBC ...

As reported in the Financial Times ...

"Citigroup is to break itself up by separating higher risk US consumer finance and securities businesses from its global commercial banking operations in an attempt to ensure its survival.  People close to the situation said Citi would place unwanted assets and businesses worth more than $600bn – a third of its balance sheet – into a “non-core” unit to isolate them from healthier parts of the company."

"Bankers said the new unit would remain on the company’s books but its results would be reported separately from the rest of the business in an effort to convince investors of the company’s viability. The non-core unit could be eventually sold in parts or as a whole or spun off once market conditions improved, they added."

This shape shifting entity appears not to have profited from all of the Federal Reserve loans and the TARP (Troubled Assets Relief Program) which were reportedly created to assist Citibank in staying afloat. Now we seem to be seeing the "smoke and mirrors" phase to convince ordinary investors to help bailout this signature financial institution with new money. It is also best to remember that the financial institution's largest stock holder is a Saudi Arabian prince. With its shares trading at an abysmally low level -- around $5.00 -- it seems the end is nigh!

UPDATE: 11-24-08 "U.S. bails out Citi with $20 billion capital, guarantees"

According to Reuters ...

"The U.S. government moved to bail out Citigroup Inc, agreeing to shoulder most potential losses from $306 billion of its toxic assets and inject $20 billion of new capital, its biggest effort yet to prevent a big bank from failing."

"The bailout, announced on Sunday, will give the U.S. government a 7.8 percent equity stake and marks the latest government effort to contain a widening financial crisis that has already brought down Bear Stearns, Lehman Brothers Holdings Inc and Washington Mutual Inc."

UPDATE: 11-21-08 TOO BIG TO FAIL: GOVERNMENT BAILOUT?

According to Bloomberg News ...

"Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said."

"Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got U.S. support this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September."

“'There is no question that Citi is in the category of ‘too big to fail,’ said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. 'There is a commitment from this administration and the next to do what it takes to save Citi.'”

UPDATE: 11-20-08 CITIBANK AGAIN? 

It has been widely rumored that the primary reason that the Federal Reserve demanded that 9 banks participate in the equity-purchase bailout was to provide a degree of financial camoflage  in order not to single out any bank which desperately required additional funds to stay afloat -- lest rumors precipitate a crisis of counterparty confidence and a resultant depositor bank run. It was also widely believed that the Fed was protecting a signature name bank -- believed by many to be Citibank.

From CNBC ...

"Citigroup's stock plunged below $5—a 13-year low—and the banking giant's troubles may be just beginning. Most institutional investors and pension funds are barred from owning stocks below $5. So if Citigroup's stock remains below that level, it could trigger a wave of selling that would send the share price even lower. 'That's the danger of crossing that $5 threshold,' says Owen Malcolm, senior vice president of Sanders Financial Management in Atlanta. 'They're (Citigroup) already in trouble. It could get worse.'"

"Citi shares tumbled again Thursday despite news that Saudi Prince Alwaleed bin Talal plans to increase his stake in the company to 5 percent from less than 4 percent. The prince said the bank's shares were 'dramatically undervalued' and voiced support for the current board and CEO Vikram Pandit. But Alwaleed's investment position didn't change investors' view of the firm, which has been hammered by the credit crisis like the rest of Wall Street."

There is talk on the street of a merger with Morgan Stanley or Goldman Sachs or purchasing something. They deny that they are requesting more government bailout money. Considering that year-end is rapidly approaching and professional money managers will be adjusting their portfolios, it is crunch time for Citi.  

UPDATE: 10-15-08 SITUATION RESOLVED -- SORT OF ...

It is no secret that the Federal Reserve has been loaning the major banks and brokerages BILLIONS of dollars in revolving loans to shore up their sagging balance sheets. Now, the United States Treasury Department has announced plans to take an equity interest in major (and possibly some minor) banks by purchasing non-voting preferred stock. This is treated like a capital infusion as if the financial institutions actually went into the market and raised additional capital.

Of course, investment banks such as Lehman Brothers, Goldman Sachs, Morgan Stanley etc. no longer exists -- having perished or having been converted into bank holding companies under the auspices of the Federal Reserve, the Treasury Department and the FDIC.

While smaller banks seem to still be at risk, it is believed, by me and others, that the smaller banks will simply be acquired by larger financial institutions as their depositor's insured deposits are covered by the FDIC up to $250,000 and those who supplied "brokered deposits" above the $250,000 floor are relatively unnecessary since capital to meet an institution's "core capital requirements: is becoming more readily available through government-sponsored activities.

While Citibank does not appear to be "in extremis," the rising foreign ownership is beginning to worry some -- who openly wonder if it will become the lynchpin of a sovereign wealth fund belonging to Saudi Arabia and Abu Dhabi? Of concern is the rising foreign intrusion into our society of sovereign wealth fund operations by those who wish to preserve their large store of petrodollars, who do not wish us well -- or who are simply enemies trying to subvert our system from within.

-- steve

UPDATE: 09--25-08  WAMU GONE: NOW JP MORGAN CHASE (WOO HOO!)

"On September 25, 2008, the banking operations of Washington Mutual, Inc - Washington Mutual Bank, Henderson, NV and Washington Mutual Bank, FSB, Park City, UT (Washington Mutual Bank) were sold in a transaction facilitated by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC)."

"All deposit accounts and all loans have been transferred to JPMorgan Chase Bank, National Association, Columbus, Ohio (JPMorgan Chase Bank).  All former Washington Mutual Bank will reopen for normal business hours as branches of JPMorgan Chase Bank." Readers wishing more information can find it on the FDIC's website.

TWO DOWN -- WHO'S NEXT?

Citibank remains problematical and is said to be underpinned by investments by foreign soverign funds such as those originating in the Middle East and Asia. Certainly they will benefit from any bailout funds being contemplated by our government -- which leaves us with a sticky point: should taxpayer funds be used to bailout banks with a significant foreign ownership. It is believed that this singular reason is behind the demand that Treasury Secretary Paulson be given absolute power to do as he sees fit -- without any judicial review. Primarily why I am against the Paulson proposal that is before Congress on 9/25/08.

UPDATE: 09--11-08  WAMU STOCK REACHES ASTOUNDING LOW $1.75 PER SHARE

NEXT-UP: WASHINGTON MUTUAL

"It is believed that the major banks listed below are "too big to fail" without major consequences to the United States financial structure and overall economy. It is believed that the Federal Reserve was operating behind the scenes to facilitate the Countrywide merger and that much of the liquidity injections may have been for the continuing benefit of Citibank. Next up is Washington Mutual which is rumored to be in talks with JPMorgan Chase. The key question is: if there was so much toxic debt on the books of these banks -- where did it all go to make the deals attractive to the acquiring banks? This is the question that must be asked and answered soon."

UPDATE: 01-11-08 Associated Press

"Bank of America said Friday it will buy Countrywide Financial for $4.1 billion in stock, a deal that rescues the country's biggest mortgage lender and expands the financial services empire of the nation's largest consumer bank."

UPDATE:  01-10-08 Bloomberg News Service...

"Bank of America Corp. is in talks to acquire Countrywide Financial Corp., the biggest U.S. mortgage lender, a person with knowledge of the discussions said. Countrywide rose more than 50 percent."

"A sale may salvage Bank of America's $2 billion investment last August in Calabasas, California-based Countrywide. The Charlotte, North Carolina-based bank owns preferred shares paying a 7.25 percent dividend convertible at $18 into Countrywide common stock. The shares have since fallen to $7.75 in New York trading, valuing the company at $4.48 billion."

"Countrywide Chief Executive Officer Angelo Mozilo, 69, has failed to quell concern that the company he founded in 1969 may go bankrupt. The lender posted its first loss in 25 years during the third quarter. Mozilo had said he preferred to keep Countrywide independent rather than sell amid what he called the worst housing slump since the Great Depression."

Original story...

Are borrowing levels a risk indicator?

With all the media attention on the "paper chase" among the nation's leading financial institutions, we are curious if the recently released FHLB borrower list may be indicative of the general insolvency risk level of each institution. Or can the list serve as an indicator for potential forced mergers or outright acquisitions?

The data is provided in the unaudited  "Combined Financial Report" provided by the Federal Home Loan Banks.

Top 10 FHL Bank Members Holding Advances at Par Value (in Millions) at September 30, 2007

Borrower	Amount
Citibank, N.A.	$98,682
Countrywide Bank, NA	$51,050
Washington Mutual Bank	$43,711
World Savings Bank, FSB	$24,241
RBS Citizens, NA	$21,856
Sovereign Bank	$21,078
Bank of America Rhode Island, NA	$19,581
World Savings Bank, FSB	$17,263
U.S. Bank	$16,806
Bank of America California	$14,750

 For a contextual explanation of the above numbers and applicable footnotes, please check the report which can be found here -->FHLB System Combined Financial Report.

$98 Billion for Citi, $51 Billion for Countrywide and $43 Billion for Wamu -- big banks, big bucks and big risk?

More paper ... and still more paper

In order to generate funds, the FHLB issues FHLB debt securities (also known as consolidated obligations or COs) and are rated by both Moody's and Standard & Poor's.

All long-term debt issued by the FHLBanks is rated Aaa by Moody's and AAA by Standard and Poor's. All short-term debt is rated P-1 by Moody's and A-1+ by Standard & Poor's.

Sound familiar?

But who knows the real value of the collateral? And can you trust the ratings agencies who decided that lower grade paper along with a hedge agreements could be re-rated as "investment grade?"

Caveat...

Unfortunately there is no way to know the institution's other borrowings or the soundness of the underlying collateral in their mortgage backed securities portfolio or how much of the shareholders equity has been eroded until the final year-end reports are issued.

What can YOU do?

Take the Better Business Bureau's slogan to heart: Investigate Before You Invest.

Consider shifting your personal accounts away from the bigger banks into strong regional banks or credit unions with the least exposure to derivatives and other structured investments crafted by the Wizards of Wall Street.

Pay attention to what is going on around you. You may never get a second chance.

-- steve

A reminder from OneCitizenSpeaking.com: a large improvement can result from a small change…

The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. -- Marcus Aurelius

<Note: The author has 250 shares of CFC which were underwater days after purchase>

"The acquisition will make Charlotte-based Bank of America Corp. the nation's biggest mortgage lender and loan servicer."

"Bank of America said it initially plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009."

"The transaction represents a 7.5 percent discount to where Countrywide shares ended Thursday after they soared on news that a rescue plan was in the works. It also effectively leaves Bank of America with a big loss on its $2 billion August investment in Countrywide Financial Corp. during the height of the summer's global credit crisis."

On this historic day, it seems that WaMu stock reached a record low of $1.75 leading me to believe that WaMu's greatest test might come this Friday (9/12/08) a day traditionally reserved by the FDIC for enacting and announcing conservatorships or forced mergers. How low can this stock go is unknown.