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Chris Whalen Discusses Citigroup's Earnings And Prospects
The Institutional Risk Analytics Managing Director nails the banks' consistent beating of analyst expectations: financials keep "coming in better on non-recurring items." Indeed, once the government's "non-recurring" subisidy of free "money ends," and such by-now forgotten business lines as investment banking have to pick up, what then?
Additional observations from Whalen include bank subsidies, consumer credit trends, bank reserves, loss rates, non-performing assets, the regional versus the TBTF duel, and the reconciliation of Citi's positive net income and its EPS loss, and an outlook on a "disappointing" Q4.
Lastly, Chris thinks that the financial industry will shrink materially from $13 trillion at the end of 2008 to $11 trillion by the end of 2010: the implications for the US balance sheet and for deflationary pressures are obvious.
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Chris looks stunned in that picture. He must have just heard something preposterous, like Citi claiming it was profitable in Q3.
"Citigroup Inc... posted a $101 million profit,... On a per-share basis, the company had a loss of 27 cents"
Magic.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3G4b23_KXEE
Chris...how about discussing the upcoming Q1 FASB FAS 166,167 matters, e.g. spe, siv matter of bringing those cayman island bad boys back home to momma?
Thank you.
EDIT...here's what cof thinks per fdic public comments.
http://www.fdic.gov/regulations/laws/federal/2009/09c06AD48.PDF
DH - Remember if we do then the OAS will push for the same treatment from Miami specifically and the US system generally.
I agree that the whole process of generating vast volumes of regulatory garbage only to provide an equally vast amount of ways to get around it fools no one any longer. If we are going to blast the Swiss, HK & Singapore we should be willing to blast ourselves. Of course we will get the same thing the GW wrote about yesterday regarding swaps, being the "unsetteling" nature of such reality to the structures of a Too Big To Support banking sector.
The slop is starting to ride over the waders, ya know what I mean...
+ 1000 Brilliantly stated as always..x
i can smell the mold between the toes.
i always laughed when i went to grand cayman (couple of times) and saw the downtown area and thinking to myself "so, this is one of the largest financial centers in the world?". i think there was one or two office buildings and that's about it.
hoping to soon spend the remainder of my time sitting on seven mile beach....
Can somebody point me to something that explains in semi-understandable language what the issues are with regard to the potential legal obligations of financial companies and these off-balance securitization vehicles? Chris Whalen suggested last week that the institutions have to make up shortfalls while COF in this letter says some have and some may not and we don't regard it as an obligation, losses should be swallowed by the investors in the securities.
Financial companies have been dumping garbage on clients throughout history without making up losses. I can't believe any of them would voluntarily make up losses on these off balance sheet vehicles if there wasn't an explicit legal obligation or if they weren't virtually assured to lose in court. It's not like they give a crap about their reputations or their clients.
Green Sharts, I cannot point the way to clarity. I doubt it exists. What I can say with some confidence is what Whalen is saying is that a structure that is funded as advertised is in the clear. The issue with "curing" the instruments in question is that they never were fully funded from the get go and are therefore open to litigation.
On point, if the garbage is fully funded then the holders are holding the bag. If on the other hand the structure was never fully funded with the expectation that the core assets would appreciate or that the founder would make up any shortfalls in cash, then the structure is the banks bag of crap. At least until it becomes TBTF issue then we will be facing another moment like when the world worried that US courts would call all naked shorts.. well naked. For the time being the fed has attempted to settle that via the AIG put.
We'll see. Especially with the issues developing at BAC as discussed by Reggie Middleton..
as i understand (one of my sources is the recent Lehman book by larry mcdonald) many of these were less than 100% to begin with, going to Miles' point I think.
I don't know enough about this game to offer any additional input.
Miles, thanks for the response. I recall Whalen talking about whether they were properly collateralized unfront but your comment about "as advertised" helps with regard to the potential exposure. Perhaps they were verbal or side letter arrangements, as with Merrill Lynch and the Enron barge deal a few years ago (Enron asked Merrill to buy some barges to help make a quarterly earnings number and made a verbal guarantee they would buy them back).
Whalen suggested that it was pretty widely known within the industry that some (Bank of America via Merrill and WaMu acquisitions, I think he said WFC via the Wachovia acquisition) have this problem. I have looked through some WFC 10-Qs pretty closely and never seen the issue discussed. I also looked for it in B of A's second quarter 10-Q after Whalen's comments last week; couldn't find any reference to it there other.
If we had a legitimate SEC, I'd think they would have called Whalen in after his public comments last week and ask him to explain what he was talking about.
Mike Mayo the money question: if you can't look at delinquencies and can't look at loss trends what exactly do you look at? Pandit's rejoinder: it is complicated, I get it. But seeing signs of stability. That should be a good for a few upside points to targets
OREOs.
is Pandit going to run for Congress?
No problem, Bernanke will steal all the money market money and give it to Pandito the Bandito.
in other news: last Friday Citi failed for the umpteenth time, but was saved again via Discount Window.
at the end of this idiocy somethin's gotta give, either Shiti or Discount Window. stay tuned
fdic extended TGLP....plenty of money for everyone.
speaking of that, has Lloyd Blankfein and Goldman Sachs paid of the 22 billion in TLGP american taxpayer backstopped funding?
LB? How about a response....thank you.
"..but was saved again via Discount Window."
That, and creative accounting.....