After releases by JPM and BAC last week, Citi’s improvement in asset quality and capital markets revenues had been expected. However, even excluding CVA marks, trading revenues were below 1Q2009 results. While there are positive developments evident in these earnings, we remain cautious on Citigroup relative to its peers, especially at current spread levels. In addition, the company is likely to be a more frequent issuer given its relatively low share of US deposits. The overall positive mark-to market in the Special Asset Pool is a positive, but marks were still negative for CRE and Alt-A mortgages among others. Citi Holdings remains sizable at $503 billion and consumer delinquencies still remain high, with Citicorp 90+ delinquencies unchanged qoq and 30-89 day delinquencies increasing 5 bp qoq indicating risk levels remain elevated.
Here is the reason for the surge: all day everyone sold off yen and bought whatever risk assets they could find. The carry trade is back. Risk on. As equities surged higher, all the new found money had to be put somewhere: just as equity indices stormed higher so HY rushed back to the day's highs. Stocks, bonds, who cares - buy it all. In the meantime credit is once again scratching its head at the lemmingness of stocks. Even with Goldman stock rising by $2.50, its CDS was 7 bps... wider! Nothing makes sense anymore. Sell yen, but whatever crap you can still get your hands on. The crappier the better. Obama said so.
In the rush over Goldman coverage and volcanic news, a very relevant piece of market update may have gotten lost, namely that Moody’s/REAL All Property Type Aggregate Index just peaked once again. Moody's reports that this index "measured a 2.6% price decline in commercial properties in February. This decrease comes on the heels of three consecutive months of rising prices, and brings the level of commercial property prices 41.8% below the peak measured in October 2007. Values are now down 25.8% from a year ago, and 41.6% from two years ago." This is the first time prices have fallen since October of last year: have we just hit price resistance in CRE?
In the video below, it appears that Steve Liesman of CNBC has access to deposition or other facts in the SEC case. Perhaps he has been talking to Paolo Pellegrini, Paulson’s former head trader who is believed to be a key witness for the SEC. We have found no one else that is reporting on case specifics beyond what was in the SEC complaint. Liesman reports that the Abacus 2007-AC1 deal was somewhat unique in that it was Paulson’s only CDO that used a neutral third party manager to select collateral (ACA management) or “bespoke” deal. Pauslon did other CDO deals where they picked the collateral directly and it was disclosed as such. What is not clear is if Paulson’s economic interest in those deals failing was also properly disclosed. The implication is if Goldman loses this case it will not lead to a precedent that will spread to many other CDOs.
One stock, a company which is effectively bankrupt absent the government's support and the FASB's suspension of Rule 157, now accounts for 20% of total market volume. At last check, Citigroup had traded 1.6 billion shares, one fifth of total market volume. Why does anyone still fool themselves that the market is indicative of the total universe of stocks. We are confident that if we add Goldman, BofA and the other financials, especially their penny stock variants, we would get something like 40% of all volume. This is the sector which as we have repeatedly reported has seen short recalls by assorted custodian entities and repo desks.And as we type, Dick Bove is on CNBC providing the instacommentary he had previously banned himself from doing before, and confirming what we have been saying all along - that Goldman Sachs is a Buy only because it is a monopoly.
It appears the Democrats at the SEC were hell bent on going after Goldman, even as the Republicans votes against action, in a close 3-2 vote. Some say this is the reason for the most recent surge in the market. As this event has already passed and at this point it will either be settlement (which Goldman has made clear it does not care about) or an actual jury trial, how this disclosure is in any way relevant to move the market is once again beyond us.
Prepared Remarks By Bernanke, Fuld And Schapiro Contradict Those Of Anton Valukas In Tomorrow's Lehman HearingSubmitted by Tyler Durden on 04/19/2010 - 14:44
In a nutshell, Bernanke says he was not supervising Lehman, Fuld was not aware of Repo 105, and the SEC had never heard of such a concept.The only person who is not lying, Anton Valukas says that he "found Lehman was significantly and persistently in excess of its own risk limits" and confirms that the SEC is nothing but a pathetic liar lead by incompetent idiots: "we found that the SEC was aware of these excesses and simply acquiesced" and "we believe it is clear that the SEC wasLehman's primary regulator." And just in case the FRBNY thinks it can avoid claims of potentially criminal negligence "
Valukas concludes: "there were "serious lapses" in SEC, federal reserve bank of New York working together to avert Lehman's failure." In other the CEO, the Regulators and the deranged money printer all wash their hands of the fraud that very well may have led to the biggest and most dramatic bankruptcy in history, despite that the independent third party arbiter finds them all guilty of gross incompetence and possibly collusion.
"Mr. President, please show the American people the AIG emails. In the wake of the disclosures associated with Friday's government fraud accusations against Goldman, Sachs & Co., one of our nation's wealthiest, largest and most politically well-connected banks, it is inexcusable the U.S. government still refuses to release the thousands of emails that exist between AIG and Goldman Sachs. Unlike the Icelandic volcano, this was no natural disaster. Trillions of dollars have been defrauded from the U.S. taxpayer by a banking scam run by the top 1% of our country." - Dylan Ratigan
FT Alphaville has released the full September 2009 document that Goldman released in defense to the Wells Notice. Amusingly we note that Goldman requested a FOIA CONFIDENTIAL TREATMENT on the submission. That didn't work out too well. We are going through it now, although what is interesting is that Goldman, in defending its own practice with Abacus' (lack of) disclosure, inadvertently throws Merrill Lynch, and Magnetar, under the bus, claiming Merrill's Auriga CDO had comparable parallels to Abacus, which if the SEC finds strong enough in the GS case, it will certainly frown upon when perpetrated by ML-Magnetar. This has lead some to speculate that Bank Of America is likely next on the Wells Notice disclosure bandwagon.
This day is just getting weirder by the minute, as the floodwall holding all the pent-up Goldman inquiries finally breaks. The latest comes from Hugh Son at Bloomberg who informs that Elijah Cummings and Peter Defazio now insist that the SEC should "widen its probe to determine whether securities backed by bailed-out insurer American International Group Inc. were improperly created." And "should any of these transactions be found to include fraudulent
conduct, any resulting contractual payments from AIG- issued
credit-default swaps could be viewed as ill-gotten gains." We'll be happy with Goldman paying back the several billion over and above what the Fed paid it to make its returns on AIG CDS at par. In other words, any profit that Goldman made by buying CDS on AIG, then covering when it knew full well the government would bail out AIG, constitutes insider trading as we have claimed before, and the $2 billion in CDS-related profits on AIG should be immediately refunded.
April 19 (Bloomberg) -- Lehman Brothers Holdings Inc., which has been investigating whether any companies may have contributed to its bankruptcy, issued at least five subpoenas to investment firms and hedge funds including Goldman Sachs Group Inc., SAC Capital Advisors LP, Greenlight Capital Inc. and Citadel Investment Group LLC, according to court filings. Bankrupt Lehman is conducting its own probes separately from the 2,200-page report by examiner Anton Valukas that was published on March 11.
Just like the Hekla eruption caused the Dow to surge in complete disregard of cause and event, or, heaven forbid, logic, so this next news should finally force us to start selling the Dow 36,000 hats. Bloomberg reports that Bundesbank President Axel Weber has told German lawmakers that the €30 billion rescue package promised by the EU and the IMF will not be enough. Just how big will the shortfall be? Well, the recent expansion in the IMF's $50 billion rescue facility to $560 billion should provide some color on the matter. It gets worse: according to Bloomberg, "Weber, citing television footage of Greek demonstrators, expressed concern that sections of the Greek population either don’t care or fail to appreciate the seriousness of the situation their debt-laden country faces, the two people said on condition of anonymity because the briefing in Berlin today was held in private." How quaint - did anyone tell the Greek bureaucrats to look up the definition of the term "austerity" in this whole spectacle? As always, look for the American taxpayers to end up footing an ever greater portion of the Greek bailout bill. That's fine - they won't care: they have the brand new double double KFC burger, a new never to be read book downloaded on the iPad, and the GS witchhunt to keep them distracted, even as their taxes prevent the firesale of Santorini.
Breaking news: The Hekla volcano has erupted.
Count Europe's 2010 GDP a scratch. We expect Katla to complete the trifecta any minute. Iceland's (c)ash revenge will be complete.
Update: Icelandic Met Office says no eruption underway at Hekla volcano according to BNO which reported the original news.
Update 2: It appears the Iceland webcam was pointing at a different volcano according to http://www.aftenposten.no. We will keep you apprised of this situation, although based on seismic readings as we reported earlier, Katla is more at risk for any imminent action
Once upon a time investment bankers were supposed to facilitate capital formation for exciting new businesses. They were trusted advisors looking out for the interests of their investor clients, chaparoning to capital to efficient purposes.
How quant...(pun intended)
Now Wall Street has metastasized into a cesspool of predatory "financial intermediaries" like Goldman, who help predatory financiers like Paulson and Magnatar target suckers and fools in “private placements” of synthetic CDOs to sophisticated idiots. You know suckers and fools like AIG and your pension." - William Banzai