No Surprise With Newest Citi Bailout
Written by Hank Brock, CPA, MBA, CLU, ChFC
Tuesday, 25 November 2008
Do you remember the three big banks I named in the Brock and Associates’s “Making $ense” newsletter back in March-April? (See our newsletter “Archives”.) And the three banks that hold one-third of the $516 Trillion in derivative bets out there? And all those derivative bets out there that were non-disclosed “off balance sheet” transactions? Well, read below about Citibank, JP Chase Morgan, and Bank of America.
For months I have been saying that it will take 2 years for the news to report all the “surprises” out there, and that until all the dirty wash is hung out to dry, the economy will not hit bottom. Well, there’s still a lot to come, and it will take a couple of years.
--Hank Brock
The Citi Bailout: What Do You Believe?
by FOX News Crews
By Adam Shapiro, FOX Business Network correspondent
http://onthescene.blogs.foxnews.com/2008/11/24/the-citi-bailout-what-do-you-believe/
It all boils down to one simple question: do you believe them?
The numbers count, but nothing is more important than the faith of consumers, investors and citizens to believe statements from Citigroup and the US government about the most recent bailout to save the financial system, western civilization and “Big Nick’s” on New York’s upper west side (which serves the best burgers north of “Times Square” and to my knowledge has not asked for a bailout). Trust me, Big Nicks is a part of this, but regarding CITI and Uncle Sam, do you believe them? Standing outside CITI Group headquarters on a cold New York day and listening to all of the experts - remember it was the experts who got us in to this mess - my answer to the question is no, and I hope to be proven wrong.
The 306 billion dollar FDIC insurance plan to save CITI covers a pool of trading account assets, which CITI says totals 458 billion. (See slide 17 from the CITI Town Hall Presentation given Nov. 17)
Here is the problem: the same trading account assets are 520 billion at JP Morgan Chase and 429 billion at Bank of America. So, will they now knock on the bailout door? What is different about those trading assets at CITI compared to the assets at JP Morgan Chase and Bank of America? Do you believe the FDIC, FEDERAL RESERVE and US TREASURY - which issued a joint press release saying, “With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy”? What do they know that we don’t about those assets at other banks? Or, do you think they will have to step in to help JP Morgan Chase and Bank of America?
CITI insists that its future losses will not exceed 29 billion dollars and that the FDIC will not have to spend one penny to save them. Really? Do you believe them? Just last week CITI said, “CITI has a very strong capital and liquidity position….” Really? Then why did CITI just get an additional $20 billion from the US Treasury? Did CITI fail to understand its own exposure, or did they simply forget to include the $29 billion in potential future losses from the nifty Nov. 17 town hall pep talk that CEO Vikram Pandit gave CITI employees. It was at this time he notified them that CITI was cutting 50,000 jobs. Great way to motivate the troops. Seriously, can you believe this stuff is happening?
Finally, this deal does not address the $1.2 trillion off balance sheet assets that CITI insists pose no threat. (Add loads of sarcasm here) REALLY? We’ve heard that before, and remember 667 billion of that off-book asset are mortgage backed securities. CITI CFO Gary Crittenden says “CITI has enormous capacity to absorb credit losses.” Those off balance sheet assets “are likely not to have a significant impact on CITI over time.” But FOX Business anchor Alexis Glick asked Crittenden what guarantees CITI could give us that those 1.2 trillion wont impact CITI’s balance sheet, and that was a question he did not answer. So, do you believe them?
Which brings me to Big Nick’s on New York’s Upper West Side. I am really hungry, and a Big Nick’s burger right now would be a lot easier to swallow than what the FDIC, Federal Reserve US Treasury and CITI are serving the American public.
Visit FOX Business Network for the latest news and exclusive coverage on the CITI bailout.
Hank Brock is President of Brock and Associates, LLC, a fee-based financial planning firm specializing in asset protection and generational wealth preservation. For more information on how to protect yourself during these volatile times, schedule a free consultation.
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