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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: ChanceIs who wrote (93513)	10/31/2007 10:11:13 PM
From: ChanceIs	Respond to of 306849

We are downgrading Citi to Underweight from Overweight based on concerns we have about its CDO portfolio, subprime consumer exposure, SIV exposure, and thin capital levels. Citigroup is the 2nd largest CDO arranger, arranging $25 billion YTD 2007, just after Merrill's $31 billion. We are baking in an additional $1.1 billion in CDO writedowns in 4Q07 based on our expectation that S&P’s CDO ratings changes announced on October 19 were not reflected in C’s CDO mark in 3Q07, and another $1.0 billion in 1Q08 based on our outlook for deteriorating subprime consumer delinquency. On subprime, Citi has the largest subprime exposure in our group at 13% of loans and 5% of earning assets. We have a sharper increase in consumer losses at CIti based on this heavier subprime composition. On SIVs, Citi is a manager of roughly $80 billion in SIVs. While they do not have liquidity backstops to their SIVs, they will lend at arms-length, exposing Citi to potential losses. Given that there is no disclosure on these loans, it is hard to estimate the magnitude of these potential losses, but we do bake in deteriorating corporate credit in the investment bank. Lastly, Citi's capital levels are among the thinnest in the group at 7.4% tier 1 and 3.0% tangible equity/tangible assets, leaving it more vulnerable to shocks and less able to take advantage of market opportunities. ____________________________________________________ A buddy sent me the full Morgan Stanley critique of the banking sector. It is legit. Banks rating banks!?!?! No conflict of interest there.