A simple question.
Is Citigroup bankrupt?
Note:I *cannot* define bankrupt - but I am asking anyway.
I like Alan Abelson.
Its the words he uses and the way he uses them.
Have read him for many, many years.
This week he was different.
(I am leaving out his comment about Ben because it would
confuse his *sense* of things)
Alan Abelson - excerpt - page 5 - Barrons Nov 12th, 2007
"For sure, this not the time for bromides. One needn't
conjure up a doomsday scenario to ealize that the economy
and the stockmarket are on very thin ice. The Fed has plenty
of company, both in Washington and Wall Street, in not
fully grasping what a precarious condition we are in.
A generation of living dangerously,often way beyond
our means, as individually and collectively, confusing
credit with cash and leverage with assets , has
brought us to this most unpretty pass.
The great boom in credit, a heck of alot of it shaky,
has finally gone bust, .... Its becoming apprarent
that a day of reckoning so long delayed, so many
times interrupted, is at hand."
end of Abelson excerpt ....
putting some numbers to it - and I don't know if
these numbers are accurate ...
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They have stated their total liabilities at the 3 level were $40.36 billion, which was revised to $134.8 billion, but these are hedged positions. We do not know what the hedges are nor do we know how solvent the sellers of these hedges are. As we explained before many derivative writers have no collateral assets to cover the contracts they have sold. What is disturbing, counter to this fairly opaque announcement by Citi is, that the CFO of Citigroup said the market simply was not there. In other words, there were few if any buyers for level 3 junk bonds and that the market to hedge the CDO book was not there. That means Citi had few if any hedges in place. That said the CFO then said Citi might liquidate CDO’s if market prices come back. Sell to whom? How can CDO’s rally if there are few or no buyers? As we reported in the last two issues if hedge derivatives do exist, are they with Ambac or MBIA? If they are they may be uncollectible, because both they and the other bond insurers may go under.
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Total derivatives are now almost at $500 trillion. The current credit crisis has obscured this problem. The derivative positions will get larger and the implosion when it comes will be deafening. U.S. commercial banks increased their notional amount of derivatives in the 2nd quarter by $7.7 trillion to $152.5 trillion. These credit derivatives, which are the fastest growing derivative product, increasing 16% from the 1st quarter to $11.8 trillion. Credit default swaps, represent 98% of the total amount. That is up from 79% yoy. The five largest dealers hold 97% of the contracts. In descending order, HSBC, J.P. Morgan Chase, Citibank, Bank of America and Wachovia. This is what awaits us around the corner.
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