Summary of results:
- Citi Q1 revenue USD 19.7bln vs. Exp. USD 20.54bln; this is a whopping $5.7 billion drop from the $25.4 billion in Q1 2010. So much for revenue growth.
- Q1 EPS USD 0.10 vs. Exp. USD 0.09
- Q1 tier 1 capital ratio 13.3%
- Q1 tier 1 common equity ratio 11.3%
- Q1 net credit losses declined 25%
- Q1 Loan Loss Allowance drops to $36.6 billion from $48.7 billion year over year.
- Total deposits $865.9 billion compared $827.9 billion a year prior
- And the kicker: Q1 reserve release was $(3.37) billion on $4.2 billion profit from continuing operations. In other words, absent accounting gimmickry the company would barely have been profitable
Europe is not the entity facing a funding crunch this morning. Just out from Reuters:
- LIBYAN REBELS UNLIKELY TO EXPORT MORE CRUDE UNTIL PRODUCTION RESUMES - OIL OFFICIAL
Which means that Gaddafi has now managed to isolate and send the Libyan rebellion, armed with a central bank before they even had a constitution, on the road to insolvency. Which also means that should CIA efforts wish to be successful, especially in light of recent inability by NATO to continue the air superiority campaign due to lack of munitions, America will have no choice but to either directly provide funding to rebels, or puts marines directly on the ground: both moves which will likely not do much for the president's popularity rating.
As part of the broadly bipolar risk [ON|OFF] market stampede, Spain probably could have picked a better day to attempt to sell €4.7 billion in bills than just after the weekend when the market realized there is no way out for Greece than default. Alas, it did not, and the result was not pretty. Per Reuters: "Spain paid substantially more to issue 12- and 18-month Treasury bills on Monday compared with last month as uncertainty hovered over a Portuguese bailout and speculation intensified about Greek debt restructuring. The sale was at the low end of the Treasury's target range of 4.5 billion to 5.5 billion euros ($6.51 billion-$7.95 billion) and comes ahead of a closely watched long-term debt auction on Wednesday of bonds maturing in 2021 and 2024." Specifically, the Spanish Treasury was forced to pay 2.77% for its €3.5 billion 12 month Bill, 64 bps more than the 2.128% paid in a comparable auction in March, and making matters worse was a tumble in the bid to cover from 2.4 to 1.6. The weakness was mirrored in the auction of €1.2 billion in 18 month notes, which priced at 3.364%, up 93 bps from last month, with the BTC tumbling from 3.5 to 2.0. And one can wonder what the outcome would have been had the Fed or other central banks not been selling puts on the Spanish curve (because if he is doing it off the balance sheet in the US, there is nothing really preventing Bernanke from taking his curve manipulation tour global). And yes: Spain is next. "Investors are turning their attention to Spain as the next weakest link in the euro zone chain after Portugal said it would seek aid from the European Union and the International Monetary Fund, the third to fall after Ireland and Greece."
Homebuilder sentiment and a few speeches from Fed officials. In general week to be quiet as market begins holiday wind-down.
And so we see another tipping point in action: while absolutely nothing has changed in the fundamentals of Europe's insolvent peripherals, today, for the first time since early January, we are seeing an absolute bloodbath in the risk gauges of the European periphery. As the PIIGS list below shows, spreads are surging, and while it is no surprise that Greece is now trading north of 1200 bps following a weekend full of Greek default chatter, the important observation is that Spain and Italy are once again in the default mix.
- Portugal 615 (+15) - officially insolvent
- Italy 156 (+13)
- Ireland 588 (+21) - officially insolvent
- Greece 1225bp (+89) - officially insolvent
- Spain 250 (+16)
$1 Billion of Gold Bars Taken Delivery Of By Pension Fund Due to Risk of COMEX Default and ShortagesSubmitted by Tyler Durden on 04/18/2011 - 06:59
Concerns that the sovereign debt crisis may be entering a new phase and the risk of contagion has seen peripheral eurozone bonds fall sharply and the euro fall against major currencies and gold today. Sovereign debt risk, global inflation concerns, geopolitical risk, disappointing European earnings and concerns about Japan's coming reporting season have seen equities weaken and new record nominal highs for gold and silver (all time and 31 year). Greek bond yields have continued their relentless march higher and have risen above 14.07% (10 year) and Portuguese debt (10 year) has risen to a euro era record over 9.27%.Spanish and Irish debt are also under pressure this morning. Gold is increasingly being seen as the superior currency in a world of trillion dollar and euro deficits and bailouts. Indeed, the printing and electronic creation of billion and trillions of the major paper currencies is increasingly making gold and silver the currencies of last resort. One of the largest pension funds in the world, the University of Texas Investment Management Co (which manages the endowment for the Texas teachers pension fund), has realized this and has put 5% of the pension fund into gold bullion (see news). The fund has previously expressed concerns about the counter party risk in ETFs. However, the reason given for opting for taking delivery of 100 oz gold bars in a warehouse was that if the holders of just 5 percent of COMEX futures contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand leading to a COMEX default. The risk of a COMEX default increases by the day and appears to be moving from the realms of the “conspiracy theory” to that of “of course we knew it would happen, it stands to reason and was inevitable.” A COMEX default would have serious ramifications for the dollar and all fiat currencies as it would further erode trust in central banks, fiat currencies and today’s monetary system.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 18/04/11
Ah, April 15th! I want you to consider that the date means absolutely nothing to 47% of US households as they will pay zero in federal income tax. Yes, state, property and sin taxes still get them, but we are seeing a disturbing trend towards a tipping point where fewer than half of us pay any sort of income tax. Five years ago it was 40% who paid no income tax. By 2012 this could be the first election in which the majority of voters will be able to vote themselves more government largess paid for by a minority of taxpayers. We may soon have to re-jigger the American Revolution’s familiar rallying cry into: “Representation Without Taxation!”
The early Finnish votes are in and it does not look good for Portugal. As Reuters reports, Finland's anti-euro True Finns made huge gains in an election on Sunday, raising the risk of disruption to an EU bailout of Portugal. The right-leaning National Coalition topped the ballot, gaining just over a fifth of all votes. Party leaders will start talks soon on forming a new government. The problem is that as the anti-euro moniker indicates, the True Finns are pretty much hell bent on vetoing the Portugal bailout which means the ongoing annexation of Europe's periphery by Olli Rehn is about to finish (and yes there is a finish-Finnish joke in there somewhere). Per Marketwatch: "Early results Sunday from Finland’s parliamentary elections suggest the anti-EU bailout True Finns party will hold the second-most number of seats and could even be part of a coalition government. Such an outcome may mean the EU’s planned bailout of Portugal is vetoed by Finland, a move that would roil the euro-zone markets. With half the votes counted the True Finns were on 19% support, and on course for 41 seats, tied with the Social Democrats and one seat less than National Coalition Party’s predicted 42-seat haul, the BBC reported. Finland is the only euro-zone country that requires bailouts to be approved by its parliament. Strong gains by the True Finns could derail a planned rescue for Portugal." What this means is that Goldman Sachs' European analysts will be scrambling all night to come up with loophole to European law that will not result in an epic plunge for the European currency, as apparently not even that sage among sages, Thomas Stolper, whose 2010 batting average of 0.000 made his contrarian calls manna from heaven in the past year, could anticipate this Black Swan. We will keep you informed of all the sell-side spin as it starts trickling in.
The economic chaos will likely lead to a Republican landslide in the 2012 election. A Boomer Prophet with a reputation for fixing financial disasters (aka Mitt Romney) would be given a mandate to fix the economic system. All generations will realize that generational promises made cannot be fulfilled. People of a libertarian mindset, like me, will not be happy with the turn of events. In a chaotic scenario, the Federal government is likely to assume even more power than they have today. The American people will be fearful and angry. If the financial criminals on Wall Street are brought to justice, the chances of a unified populace will increase. A drop in everyone’s standard of living would be acceptable, as long as the rich shared equally in the burden. If the super wealthy oligarchs retain their power, a fracturing along class lines would become a distinct possibility. Social unrest, riots, and violent protests along the lines of the current situation in the Middle East could develop. Then a question of military use against the civilian population becomes paramount to what would happen next. Amidst the financial chaos will be the ever present peak oil issue. The increasingly high prices and imminent shortages of supply will exacerbate the pain for the American people. The current War on Terror is really a cover for keeping American troops in the Middle East as a forward vanguard to keep the oil flowing. The U.S. consumes 7 billion barrels of oil per year and will use all means necessary to keep it flowing. With a Boomer Prophet leader invoking American manifest destiny, it is likely we will intervene to protect Saudi Arabia, Iraq, and Kuwait in the name of democracy. A terrorist incident in the U.S. would provide convenient cover for further intervention in the Middle East. As with most wars the unintended consequences will overwhelm the best laid plans of politicians and generals. Further U.S. intervention into an already exploding Middle East will likely spur a larger conflict between Islam and Christianity. Ground zero could shift to Europe as millions of Muslims have settled there and will not react positively to western powers siphoning oil from Islamic countries in the name of Christianity. History has taught us that Fourth Turnings end in all out war. The outcome of wars is always in doubt.
Now that the global financial system is down to living literally auction to auction, with negligible available cash and deficits as far as the eye can see, not to mention a European continent living day to day on the whims of either political extreme, issuance of government paper, and particularly its proper uptake, takes takes on a especially significant role. Below we present not only Goldman's summary of the key events in the past week as well as those in the next 5 days, but a bond auction schedule, together with a POMO summary, for the next two weeks.With everyone selling as much paper as they can wet away it, not even the global central banking cartel selling unlimited long term puts on the worldwide treasury curve will do much to prevent the upcoming global yield tsunami.
Where does one even start with this one: US launches air campaign against oil rich country under pretext of humanitarian intervention (while ignoring comparable events in Syria and Iran). US realizes it does not actually use Libyan oil, government runs out of money, hits debt ceiling, leading to decision to pull out of Libya after it is uncovered that CIA operatives had been laying the groundwork for a government overthrow for months, and a scramble to avoid Iraq deja vu ensues. US hands over military campaign to ragtag NATO force led by France. NATO "air superiority" force bombs rebel units; Libyan rebels lose previously held positions and oil wells. Libyan government on verge of repelling US and NATO forces, leading to... NATO runs out of ammunition. There is no point to even comment on this increasingly more surreal chain of events.
Now that Goldman is back in the spotlight following Carl Levin's concluding report, referring Goldman Sachs to the same law enforcement authorities that are overeager to get a job at none other than Goldman (the most recent example of which came yesterday when Bank of America which hired Gary Lynch, a former director of enforcement at the SEC, to head its legal, compliance, and regulatory relations efforts) for misleading investors and perjury, the wave of indignation at the glaringly obvious is once again back in vogue. To wit: on Friday's Andreson Cooper, Matt Taibbi and Eliot Spitzer presented their views on the fact that several years into the biggest ponzi collapse in Wall Street history, stabilized only by the Fed's pledging of trillions in taxpayer capital and the Treasury issuing like amount in debt to prevent the insolvency of Wall Street's corner offices, nobody has still gone to jail. It was actually an oddly open and forthright show. Some of the notable soundbites from the transcript: "Eliot, do you believe Goldman broke the law and lied? - Yes, I do. And I know people are going to say how can you say that as a lawyer? I have read this report. It confirms our worst fears about double dealing, lying. Goldman Sachs has zero, none, nada credibility in my book"....."Tim Geithner, treasury secretary, apparently reported in today's "New York Times" was calling people saying don't bring cases, it will unsettle the markets, so they let these guys go free. Meanwhile, he signed off on $12.9 billion to Goldman to cover a bad bet they made."....."Goldman Sachs was the number one private campaign contributor to Barack Obama's presidential election campaign. It's one of the single biggest campaign contributors to both parties in Congress"..."Anderson, before I sued, went after Merrill Lynch, which was the first case we filed many years back, I was told by their lawyer -- this is a direct quote -- "Be careful, we have powerful friends"...and the kicker: "Do you think the Justice Department will prosecute? Spitzer: If they don't, shame on them. If they don't, the Attorney General should resign if he can't bring this case." And when Holder resigns, he can go work as Goldman's newest General Counsel, the end. Hopefully, unlike last time people got angry, only to promptly lose interest in Wall Street's crimes, this time it actually leads to something.
In his latest weekly kickstart, David Kostin says: "The core aspects of our positive outlook for US stocks remain in place. However, the distribution around our base case has widened since early December following a 9% rally in the S&P 500 and elevated risk to the US economic outlook from higher oil prices and inflation. Accordingly, we have shifted our recommended sector weights closer to benchmark and adjusted our thematic trade recommendations to gain more exposure to growth markets. We (1) maintain our S&P 500 year-end 2011 price target of 1500 (+14%); (2) lower our Financials weighting to Neutral from Overweight and reduce the size of our Health Care underweight; and (3) recommend buying stocks with high BRICs sales and close our Dividend Growth and Dual Beta trades. We believe these changes are consistent with portfolio risk reduction during periods of uncertainty." Considering that this came out before Hatzius' Friday night bomgb skewering Q1 GDP from 2.5% to 1.75%, we are confident Kostin will have no choice but to lower his interim S&P target, following promptly by his full year 1,500 on the S&P. After all preparations for QE3 are now in full force., only this time the brent will have $125 as a baseline instead of $70. We won't even mention gold.
Must See: TEPCO Releases Video From Unmanned Helicopter Drones Above Fukushima As Robots Are Finally Used In Restoration EffortSubmitted by Tyler Durden on 04/17/2011 - 11:09
On Friday, April 15, TEPCO released what is the most conclusive video of the devastation at Fukushima. After watching these three clips we fail to see how even the most optimistic of individuals see the situation as resolving with anything but entombment, which however judging by the urgency in Japan's actions will be the first even on the agenda...in 2015. In other Fukushima news, we learn that after declining for a few days, the seawater around the reactor has once again seen a surge in radioactivity (Kyodo), that fuel rods have melted through not one, not two, but all three active reactors at Fukushima, but not to panic: all is well as long as these are cooled down, by the same water that will eventually seep into the ocean of into the groundwater considering the cooling system is destroyed beyond repair (Japan Times), that TEPCO itself, following weeks of denials, will not only be nationalized but most likely bankrupted eventually as a push to complete the liberalization of Japan's power industry (Asahi), but this won't happen before TEPCO drags down the Nikkei: Reuters reports that as part of funding its reconstruction efforts, the virtually insolvent utility will be forced to liquidate up to its entire stake ($2.2 billion) in telecom giant KDDI, potentially setting off a selling waterfall across various asset classes. Elsewhere, now that Japan will have no choice but to contend with rolling blackouts indefinitely, the country's energy needs will be increasingly reliant on Russia's goodwill, which now is the white knight "energetic" protector of not only Europe, but Japan (Yomiuri). Lastly, also from Yomiuri is this brief summary of just how majorly impacted Q2 GDP will be (read inventory liquidations following supply chain disruptions) following the Japan earthquake.