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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: GROUND ZERO™ who wrote (83693)	11/25/2008 10:01:28 PM
From: Qualified Opinion	Read Replies (1) \| Respond to of 94695

November 24, 2008, 9:38 am Citi’s Helping Handout; Did Banks Sabotage Morgan? Posted by Tiernan Ray Check out the Barron’s video report for this post. Government Handout, um, Bailout to Citigroup Introduced The Citigroup (C) rescue plan is in, apparently arranged hastilly in back-and-forth negotiations involving a cast of thousands this week — Vikram Pandit, Citi’s CEO, Rob Rubin, former chief economic advisor, and Hank Paulson. The government will end up taking warrants (rather than preferred shares) in Citigroup, will give Citi $20 billion of capital in return (on top of the $25 billion already given as part of the Federal TARP bailout plan), and will agree to absorb up to $306 billion in troubled assets, but only after what you might call an “up-front deductible,” with Citi absorbing the first $29 billion of those losses. Wow, the first $29 billion. (The official terms sheet form the FDIC can be found here.) The mind reels. Among the concessions wrested from Citi, the Wall Street Journal reports that the bank will restructure mortgages to hold-off some foreclosures, and that Citigroup agreed to “comply with enhanced executive compensation restrictions,” although not Citi executives will be given the boot. The Journal on its opinion page this morning ties the Citi effort to President-Elect Obama’s new economic team by calling Tim Gaithner, head of the New York Fed Reserve Bank and Obama’s pick for Treasury Secretary, “Secretary of Bailouts.” The Journal calls Gaithner the best pick for the job short of Paul Volker. Over across the pond, at Financial Times’s Alphaville, the authors fret the capital infusion won’t be enough, given that Citi has a leverage ratio of 56 and that it has off-balance sheet assets of $385 billion that apparently aren’t covered by this. At any rate, financials are up sharply this morning, with Citi rising $1.81, or 48%, to $5.58. My Brother, My Enemy Remember that memo that Morgan Stanley (MS) CEO John Mack circulated to employees on September 17, after a nearly 40% one-day plunge in the stock, the memo that said, “short sellers are driving our stock down”? Well, a front-page Journal story under five bylines this morning says that the paper’s examination of trading records that week shows that “some of the biggest names on Wall Street — Merrill Lynch (MER), Citigroup (C), Deutsche Bank (DB), and UBS (UBS) — were placing large bets against Morgan Stanley.” (Subscription required to access Journal articles.) The article adds that the banks used credit default-swaps to take their bearish positions, prompting short-sellers, and that “The interplay between swaps trading and short selling accelerated the firm’s downward spiral.” A “surge” in short-selling of Morgan included hedge funds such as Third Point LLC, the article says. The article notes that New York state attorney general Andrew Cuomo is investigating whether financial firms illicitly circulated any information that would have boosted their short sales, or any trades that would have illicitly contributed, such as buying the credit-default swaps at unusually high prices, the article says. Morgan shares are up $1.20, or 12%, to $11.25 this morning. Permalink \| Trackback URL: blogs.barrons.com Link: blogs.barrons.com