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Non-Tech : Banks--- Betting on the recovery -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (134)	2/27/2009 4:23:44 PM
From: damainman	Read Replies (2) \| Respond to of 1428

Hate to say this but now that they killed divi on the C preferred's there may not be an advantage anymore to hold preferreds if they are not the trust preferreds. At least with the common you can write covered calls if you get behind- I guess it all depends on what price you get to make the risk worth it.

To: Road Walker who wrote (134)	2/27/2009 5:49:36 PM
From: tejek	Respond to of 1428

6th UPDATE: Citi Plan Leaves Bond Investors Uncertain February 27, 2009: 04:02 PM ET By Romy Varghese Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- The U.S. government's revamped role in Citigroup Inc. ( C) supports bondholders, sparking some improvement in its senior bonds and credit protection costs Friday, but uncertainty over the plan is weighing on participants. The U.S. Treasury Department announced Friday that it is willing to convert up to $25 billion of its preferred stock holdings into common stock in a move that would give the government a 36% share of the giant bank. "While the cable jibber jabbers may bemoan the state of the common shareholder, it is the credit holder that is in control of Citi's fate more, as confidence needs to be restored so that normal funding and liquidity requirements were maintained," wrote CreditSights analysts led by David Hendler. Citigroup's senior bonds are performing better, with estimates on the drop in risk premiums over comparable Treasury yields ranging from 15 basis points to 20 basis points. But the risk premium on a five-year note due 2014 is quoted at 950 basis points, a decrease by 180 basis points, according to a bond trader. The annual cost of protecting Citi's senior bonds against default for five years - a key gauge of creditworthiness - had dropped by as much as $35,000 to $ 360,000, according to broker Phoenix Partners Group. But by the afternoon, the cost had edged higher to $380,000, still a $15,000 decrease from the previous day. The annual cost of protecting the riskier subordinated debt slipped to about $ 620,000, according to an estimate from Phoenix Partners Group. The figure as of Thursday was $739,000, according to Markit. Earlier this week, the cost reached levels usually seen for distressed companies before falling, albeit to still- elevated levels. But several market participants said they were still digesting the plan, which may be difficult to execute. Moody's downgraded Citigroup's senior debt rating. Standard & Poor's, although affirming its rating, put it on negative outlook because it believes debtholders could be impacted should further government assistance be needed. Fitch also affirmed its rating while noting the challenges faced by the bank. Prices on preferred securities are "all over the place," said another bond investor. Bank hybrids have weakened recently amid speculation over the government taking larger stakes in banks. Traders estimate that hybrids, which vary in key ways such as the ability to accrue missed dividends, generally have lost between 30 and 70 basis points over the past few weeks. Citi has said it will suspend dividends on its preferred shares, while it will continue to pay the dividends on trust preferred securities and enhanced trust preferred securities. However, holders of these hybrids may be eligible to swap them into common stock. There is over $12 billion outstanding in trust preferred securities and over $10 billion in enhanced trust preferred securities, according to CreditSights. Analysts there believe that these securities will continue to see their dividends maintained because the conversion to common stock will build up capital. While the news is negative for existing common stock holders and for convertible preferred holders, "we think it is a strong signal of support for all debt holders and especially trust preferred holders with embedded junior subordinated notes," they wrote. But Citigroup still faces major challenges. Moody's cut the senior debt ratings one notch to A2; the senior subordinated debt to Baa1; and the junior subordinated debt three notches to Baa3. "The current level of government support notwithstanding, Citigroup will emerge from the current economic crisis with a different mix of core businesses and a smaller scale, which could diminish its relative importance to the U.S. banking system over the long run," Moody's said in a release. "The good news is that they're not nationalizing," said Kevin Murphy, portfolio manager at Putnam Investment Management. "The bad news is that they may see reduced cash flows, which lowers the value of their securities. That's the rollercoaster they're on." Indeed, the investment-grade market was weaker as a report released Friday morning showed that the U.S. economic growth contracted more than expected in the fourth quarter. The benchmark high-grade credit derivatives index, the Markit CDX IG11, was recently quoted over six basis points wider to 223.5 basis points by CMA DataVision. Widening reflects greater pessimism on credit. -By Romy Varghese, Dow Jones Newswires; 215-656-8263; romy.varghese@ dowjones.com (Kellie Geressy and Maya Jackson Randall contributed to this report.) money.cnn.com