Bad News Bears: CitiGroup and Merrill
http://www.bloomberg.com/apps/news?pid=20601087&sid=a14SC3UVha.4&refer=home
According to this article, Citi will writedown a further $10B and Merrill an other $5B.
This follows Citigroups $24B writedown just 3 months ago.
If you think the glass is half full, then you like the way the write-downs are decreasing in size: from $24B to $10B
If you think the glass is half empty, you have to wonder what changed in 3 months.
Does Citi not know its business?
Were they hoping for more handouts from the Fed?
Or are things just getting worse an dworse as the months go by?
In my opinion, banks are truly unaware of the extent of the problem. Worse, they are stringing everyone along with a wait-and-see attitude. They hope that they can just ride it out and clearly they can't.
Why don't they just say: we have $100B of paper at list price and we'll assume the worst and write off 70%. After all, if they are too aggressive, the assets will be more valuable in the future and they can present them as gains.
Banks can't do this because they are held to lending ratios that tie back to the value of assets on their books. And with the Fed acting like everybody's favorite rich drunk Uncle, they certainly aren't about to hold banks accountable. That means the shareholders and the market will.
Here's how it will play out. The Fed will ignore the fact that banks are technically illiquid or in default of basic bank laws. Worse, they will abet these serious crimes by buying the bad debt (also known as giving non-stop loans and taking dud loans as collateral).
But the market now perceives the problem and they know the reality of the ratios. This latest writedown has destroyed all trust and faith, like the wayward husband who strays one time too many. They simply don't believe banks and the Fed anymore. And they can smell blood on the water.
This will be a week of runs on banks, margin calls, and more money being extracted from the markets.
And it's spreading to Europe.
I do think that our April ETFC calls will be unexercised. Friday is expiration and I think the market will punish banks and lenders. if that happens, wait 2~3 weeks and ETFC will recover ground and we'll re-write the calls.
According to this article, Citi will writedown a further $10B and Merrill an other $5B.
This follows Citigroups $24B writedown just 3 months ago.
If you think the glass is half full, then you like the way the write-downs are decreasing in size: from $24B to $10B
If you think the glass is half empty, you have to wonder what changed in 3 months.
Does Citi not know its business?
Were they hoping for more handouts from the Fed?
Or are things just getting worse an dworse as the months go by?
In my opinion, banks are truly unaware of the extent of the problem. Worse, they are stringing everyone along with a wait-and-see attitude. They hope that they can just ride it out and clearly they can't.
Why don't they just say: we have $100B of paper at list price and we'll assume the worst and write off 70%. After all, if they are too aggressive, the assets will be more valuable in the future and they can present them as gains.
Banks can't do this because they are held to lending ratios that tie back to the value of assets on their books. And with the Fed acting like everybody's favorite rich drunk Uncle, they certainly aren't about to hold banks accountable. That means the shareholders and the market will.
Here's how it will play out. The Fed will ignore the fact that banks are technically illiquid or in default of basic bank laws. Worse, they will abet these serious crimes by buying the bad debt (also known as giving non-stop loans and taking dud loans as collateral).
But the market now perceives the problem and they know the reality of the ratios. This latest writedown has destroyed all trust and faith, like the wayward husband who strays one time too many. They simply don't believe banks and the Fed anymore. And they can smell blood on the water.
This will be a week of runs on banks, margin calls, and more money being extracted from the markets.
And it's spreading to Europe.
I do think that our April ETFC calls will be unexercised. Friday is expiration and I think the market will punish banks and lenders. if that happens, wait 2~3 weeks and ETFC will recover ground and we'll re-write the calls.
posted by Andrew at
2:41 PM
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