Wednesday, March 26, 2008
Grouping On Citi
There seems to be something about Citigroup Inc. being in trouble which breaks out the schadenfreude in financial analysts, something akin to what the geeks feel whenever Microsoft gets into hot water. And there's certainly no shortage of trouble to keep the schadenfreude flowing right now, with lawsuits and writedowns flying left, right and center.
First, via Don Jeffrey and Phil Milford, Bloomberg News, is the sad saga of how Clear Channel, Bain Capital LLC and Thomas H Lee Partners LP are suing a group of banks led by Citigroup Inc. for bailing out on the financing agreement for the $19.5 billion acquisition of Clear Channel Communications Inc. Bain and Thomas H. Lee filed complaints in New York state court in Manhattan today, claiming the banks breached their funding commitments. Clear Channel joined the private-equity firms in a suit filed in Texas state court in San Antonio, where the company is based, alleging the banks interfered with the takeover by refusing to provide loans. Citigroup, Deutsche Bank AG, Credit Suisse Group, Morgan Stanley, Royal Bank of Scotland Group and Wachovia Corp. stand to lose at least $2.7 billion because loan prices have tumbled since they agreed to finance the transaction last April.
I think they need to coin a new term for firms with subprime troubles trying to blackmail the markets into paying up to save the day - You know, pay up or I'll destroy myself, and in the process, take down a big slice of Wall Street with me. Maybe something like 'subprime kamikazi options', where you buy into a firm not to earn money, but to avoid losing more of it....
Secondly, Citigroup just agreed to cough up $1.66 billion to Enron Creditors Recovery Corp., who claim that 11 banks conspired with Enron officials and helped them manipulate the company's on-paper finances. Donna Kardos, Wall Street Journal, reports that Enron was seeking $18 billion in damages from Citigroup and wanted to recover an additional $3 billion in prebankruptcy payments made to Citigroup. The settlement calls for Citigroup to pay $1.66 billion, with indemnification claims and an additional $249.4 million of claims Citigroup made against Enron being waived.
And to hammer home the point that March 26th was a bad day for Citigroup, Oppenheimer & Co. analyst Meredith Whitney revised her previous estimate of Citi's quarterly loss, and pegged the loss at - Four times higher the earlier prediction. Report from Bloomberg says that Whitney correctly predicted two months in advance that Citigroup Inc. would reduce its dividend to preserve capital. Citigroup may write down $13.1 billion of assets including leveraged loans and collateralized debt obligations in the first quarter, according to her latest estimate. U.S. bank earnings overall will tumble 84 percent in the quarter, she said. ``This will not be our last reduction in 2008,'' Whitney wrote in the note. ``We anticipate further downside to both estimates and stock prices'' because banks will be under pressure to mark down assets to reflect falling market indexes. Citigroup may write down $9 billion on CDOs and $2.15 billion on leverage loans in the first quarter, Whitney said. She cut her full-year estimate for Citigroup to a loss of 15 cents a share, down from her previous forecast of a 75 cent profit.
And all this on top of last week's news that Citigroup's additional layoffs of 2000 employees in its markets and banking unit includes senior investment bankers. The latest round of job cuts at the New York-based bank brings its post- mortgage-crisis layoffs to more than 6,000, or about 10% of the market and banking unit's work force. The layoffs are expected to take place by the end of March. They're likely to take an especially sharp toll on the capital-markets side of the business, but some mergers-and-acquisition bankers will also be axed, the people said. Most of the cuts will be concentrated in New York and London.
Like they say, its lonely at the top and there's only way to go -Down. Capital infusions, earnings losses and layoffs might reduce the pain, but to really staunch the bleeding, Citi badly needs to do something on a much larger scale. Anyone thinking 'Spinoff of Citi (fill in your choice here) Division'?
First, via Don Jeffrey and Phil Milford, Bloomberg News, is the sad saga of how Clear Channel, Bain Capital LLC and Thomas H Lee Partners LP are suing a group of banks led by Citigroup Inc. for bailing out on the financing agreement for the $19.5 billion acquisition of Clear Channel Communications Inc. Bain and Thomas H. Lee filed complaints in New York state court in Manhattan today, claiming the banks breached their funding commitments. Clear Channel joined the private-equity firms in a suit filed in Texas state court in San Antonio, where the company is based, alleging the banks interfered with the takeover by refusing to provide loans. Citigroup, Deutsche Bank AG, Credit Suisse Group, Morgan Stanley, Royal Bank of Scotland Group and Wachovia Corp. stand to lose at least $2.7 billion because loan prices have tumbled since they agreed to finance the transaction last April.
I think they need to coin a new term for firms with subprime troubles trying to blackmail the markets into paying up to save the day - You know, pay up or I'll destroy myself, and in the process, take down a big slice of Wall Street with me. Maybe something like 'subprime kamikazi options', where you buy into a firm not to earn money, but to avoid losing more of it....
Secondly, Citigroup just agreed to cough up $1.66 billion to Enron Creditors Recovery Corp., who claim that 11 banks conspired with Enron officials and helped them manipulate the company's on-paper finances. Donna Kardos, Wall Street Journal, reports that Enron was seeking $18 billion in damages from Citigroup and wanted to recover an additional $3 billion in prebankruptcy payments made to Citigroup. The settlement calls for Citigroup to pay $1.66 billion, with indemnification claims and an additional $249.4 million of claims Citigroup made against Enron being waived.
And to hammer home the point that March 26th was a bad day for Citigroup, Oppenheimer & Co. analyst Meredith Whitney revised her previous estimate of Citi's quarterly loss, and pegged the loss at - Four times higher the earlier prediction. Report from Bloomberg says that Whitney correctly predicted two months in advance that Citigroup Inc. would reduce its dividend to preserve capital. Citigroup may write down $13.1 billion of assets including leveraged loans and collateralized debt obligations in the first quarter, according to her latest estimate. U.S. bank earnings overall will tumble 84 percent in the quarter, she said. ``This will not be our last reduction in 2008,'' Whitney wrote in the note. ``We anticipate further downside to both estimates and stock prices'' because banks will be under pressure to mark down assets to reflect falling market indexes. Citigroup may write down $9 billion on CDOs and $2.15 billion on leverage loans in the first quarter, Whitney said. She cut her full-year estimate for Citigroup to a loss of 15 cents a share, down from her previous forecast of a 75 cent profit.
And all this on top of last week's news that Citigroup's additional layoffs of 2000 employees in its markets and banking unit includes senior investment bankers. The latest round of job cuts at the New York-based bank brings its post- mortgage-crisis layoffs to more than 6,000, or about 10% of the market and banking unit's work force. The layoffs are expected to take place by the end of March. They're likely to take an especially sharp toll on the capital-markets side of the business, but some mergers-and-acquisition bankers will also be axed, the people said. Most of the cuts will be concentrated in New York and London.
Like they say, its lonely at the top and there's only way to go -Down. Capital infusions, earnings losses and layoffs might reduce the pain, but to really staunch the bleeding, Citi badly needs to do something on a much larger scale. Anyone thinking 'Spinoff of Citi (fill in your choice here) Division'?
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