Citi Defies Stress-Test Results
Sat May 2, 2009
By sara.behunek - The Big Money
Making business headlines today is the still-unofficial results of the government's bungled stress tests, which show that Citigroup (C) may need to raise up to an additional $10 billion of fresh capital. However, the embattled bank, one of the worst hit by the financial crisis, is arguing that that won't be necessary, according to the Wall Street Journal, which leads with the news. In fact, Citi is conducting its own analysis, and "best-case scenario" is expected to find that the bank has a $500 million or so capital cushion already. The Financial Times reports that as a result of Citigroup's objections, publication of the tests' findings has been delayed to May 7, three days after the original announcement date.
Stress tests were administered to 19 of the nation's largest banks to determine what they would need to survive under more extreme and strenuous conditions. The government has said that it will not allow any of the banks that underwent the test to collapse, and those that are determined to need more capital, but are unable to raise it through issuance of preferred shares or from private investors, will be eligible for additional loans.
"The Obama administration is expected soon to outline what type of investor it will be in companies where it has a stake," the Journal writes. "The Treasury is discussing applying different levels of governance depending on the size of the U.S. government's stake " with the end goal being to get out of the investments as quickly as is possible. It paper adds: "The outcome of the stress tests could play a major role in shaping the next phase of the U.S. government's intervention in the nation's ravaged financial system. After the results, banks will have 30 days to give the government a plan and six months to put it into effect."
The New York Times highlights Chrysler's weak month-end sales, which fell 48 percent in April. "The decline, reported Friday, was the biggest drop among major automakers, and considerably worse than the industry average of 34 percent compared to a year ago," the paper says. But the company's bankruptcy filing Thursday, followed by a speech by President Obama that encouraged consumers to buy American-made cars, was a boon for the automaker. That day, the company had 11,400 sales, or approximately 15 percent of its total for the month. "We closed a lot of deals after the fact," said Steven Landry, Chrysler's executive vice president for North American sales.
Overall auto industry sales slumped 34 percent in April, according to Reuters, "as [it] held near the lowest levels in nearly 30 years," Analysts blame all the issues surrounding General Motors (GM) and Chrysler, which they say "spooked" consumers. U.S. auto sales came in at a 9.32 million seasonally adjusted annual rate last month, according to Autodata Corp. The number fell short of the 9.8 million rate that analysts had expected. Reuters points out that "the annualized rate of U.S. auto sales is a closely watched indicator of economic activity ... U.S. auto sales typically account for as much as one-fifth of all retail sales in the country and represent one of the first indicators of consumer demand every month."
Bloomberg scours Chrysler's bankruptcy filing, and uncovers that company's secured lenders—you know, those that refused to accept the government's debt-for-cash offering of 29 cents to the dollar—included OppenheimerFunds, Perella Weinberg Capital Management's Xerion hedge fund, Stairway Capital Advisors, TCW Group, and Schultze Asset Management. That group was said by Obama on April 30 to have tried "to hold out for the prospect of an unjustified taxpayer-funded bailout," The list of more than 100 secured lenders included in the filing also contained those that were for the government's offer. Other creditors listed include Yale University, Oaktree Capital Management and assets managed for the University of Kentucky, Halliburton (HAL), Kraft Foods Master Retirement, and the Bill and Melinda Gates Foundation.
The Washington Post says that now the government has turned its eye to General Motors as it will in coming weeks have to reach "an agreement with GM's diverse collection of bondholders, who range from large corporations to ordinary Americans, will be the key to preventing the company from an outcome similar to Chrysler." Following the president's remarks about Chrysler's dissident debt holders, members of the auto task force met with representatives of GM's bondholders, "a vastly larger group with claims to nearly four times as much money." The paper quotes David Cole, chairman of the Center for Automotive Research, who says, "The stakes are higher [for GM] because [GM] is bigger and more complex."
According to the WP, "differences between the creditors to Chrysler and GM could alter the course—or at least the tenor—of the negotiations. The Chrysler holdouts were secured lenders, meaning they have a direct claim on the company's assets and legally would receive priority in a bankruptcy proceeding. Most bondholders are unsecured and face a higher risk of getting wiped out in court."
Also on Bloomberg, SEC Chairman Mary Schapiro said in an interview on Bloomberg Television airing this weekend that the SEC should be allowed to regulate which securities hedge funds can buy and how much leverage they can use. Just making them register is not enough, she said, adding that "it's certainly possible" that the SEC would consider forcing hedge funds to publicly disclose short-sale positions. "We're not at the point where we've made decisions about those things," she said, and made the point that the SEC would first consult with other government agencies. Hedge funds are a $1.33 trillion industry.
reuters.com |
