Citi, BofA Still Face Huge Losses: Bondholders Must Share Taxpayers’ Pain

Posted Oct 06, 2009 07:30am EDT by Aaron Task in Investing, Banking

Big banks were back in favor Monday, thanks to a Goldman Sachs upgrade. Meanwhile, Saudi Prince Alwaleed is imploring the U.S. government to "exit its investments" in TARP banks, notably Citigroup.

Christopher Whalen, managing director at Institutional Risk Analytics, takes umbrage with the Goldman upgrade, as detailed here, and believes the Saudi Prince is missing a big piece of the puzzle: "For investors right now, you've got to look at large banks and remember [to ask] ‘to what degree is government subsidy making this bank look better than it really is?'"

The answer is "a whole lot better," especially when it comes to Citigroup, Whalen says. Without government subsidies -- "all of things to help Citigroup look better - the bank would be in serious trouble," he says. "We'd be right back to where we were at the end of 2008 in terms of investors' perspective."

If the government were to sell its stake and withdraw subsidies for Citigroup, the bank would be forced to raise cash again in the equity markets, Whalen continues. "The only way to do that is if they show us how to get the cancer out and leave a viable business behind. We're talking hundreds of billions of dollars of bad assets that really need to be charged off."

The best way to restructure Citigroup - short of an FDIC-mandated bankruptcy - is for bondholders to convert say one-third of their debt into equity and "charge off the rancid assets," he says, noting FDIC Chair Sheila Bair made similarly themed suggestions. That would reduce the company's net interest expense dramatically, generating free cash flow and removing solvency concerns, he says. "The next day, I would tell all my clients to buy...because it's clean."

Whalen says a lack of political will in Washington and the powerful lobbying of big fixed-income houses like Pimco and BlackRock, as well as pension funds, is preventing such an outcome.

The same story applies to Bank of America, which is "next in line behind Citigroup in terms of financial problems and could be back in the arms of the U.S. government by the middle of 2010," according to Whalen. "While the Big Media focuses on the personalities and political problems at BAC, we instead focus...on the rest of the story, namely the bank's festering off-balance sheet exposure."

The problem with Bank of America and (to a less-imminent extent) Wells Fargo is, unlike JPMorgan which acquired WaMu after FDIC restructuring, they "still face the daunting task of cleaning up the mess left by the troubled acquisitions of Countrywide, Merrill Lynch and Wachovia," he writes.

http://finance.yahoo.com/techticker/article/349317/Citi,-BofA-Still-Face-Huge-Losses:-Bondholders-Must-Share-Taxpayers’-Pain;_ylt=AkDHAhEJMOOFQSNiimz_.8Xeba9_;_ylu=X3oDMTFnc2ZhYWpuBHBvcwMxBHNlYwNjb250ZXh0dWFsLXRlY2h0aWNrZXIEc2xrA2NpdGlib2Zhc3RpbA--

geeze NB........our mortgage co just sold our loan to citibank and I am so frustrated.

My bank is wells fargo so I'm in good hands, eh?

did you agree to let them sell it ?

Absolutely not, I didnt even know about it until it was a done deal. I wonder if it was something we missed in the fine print

here is the thing and it is important to remember this your loan was between two consenting parties If one wants to opt out they must notify the other . In this case it has not happened . You were notified by the third party Citi If you tell them they are third party participants and not part of the original agreement and there fore have no standing . If they take a payment out with out your consent then you can dispute it . But if you have been sent a notice with a time frame on it on which to call Citi and you haven`t then it is implied that you agree to the sale and terms of your new Loan company

I'd sure be looking into it. May be worth asking a lawyers advice.

Mic Lawyers are part of the problem it would be very hard to get a lawyer to admit to this type of thing in a one on one meeting. They get far more business from the bank then they do from the individual

MNTS I`d take a long hard look at the link I posted in the start of this thread there is a video that goes with this story . Goldman Sachs are pushing buy on Wells fargo that should be a sign that wells has topped out and they need to get out of that stock . It also means that Bank is going to be in trouble soon In the video the guy says Goldman has a track record of getting in and getting out before any one else . Why? Insider trading they know what is going to happen way before it shows up not to mention they have all the inside contacts in the Treasury and the Fed . The dollar is going to die and if they are telling people to buy a certain bank stock then they already know that the bank in Question amy be having trouble . watch the video listen to what they tell you a side note they have three other stories worth reading on the right hand side of the page one from yesterday and a Fourth Quarter prediction where they state it is going to be a blood bath

Do I want to open an account elsewhere then ? Honestly, my mind is boggled with all of this. We have all of our payments going direct deposit to wells. I can switch to US Bank as we have an account over there also.

Leave it where it is for now but keep a close eye on the stock if it starts dropping and continues that route i`d move it

Ok thanks.......................I do know that US Bank is under the gun so to speak too. What do I really know for sure ?

NB
the answer to this question is unfortunately yes in most cases
did you agree to let them sell it ?

it's in the fine print that most don't see that the bank or lending partner can sell the loan at any time at their discretion..
sucks big time doesn't it..

another thing is the agreement to pay that a hospital or doctors office has you sign..
read that comppletely and you will flip...
i X'd out the part i disagrred with and they ask me to sign a new form
when i refused they got pissy but couldn't do anything else...
i also ask for a copy of what i had just given them

it takes way longer to be a good consumer and protest yourself than most folks will take
they are either embarrassed or don't know they can refuse to agree to all of it.

let the buyer beware is the calling card everywhere

Most people will just blindly accept what is given to them Sky but when you enter into a contract it is between you and the other person or entity . What we are seeing in the mortgage and credit card areas is the selling of these contracts without notification to the other party. When you get the notice that your contract has been sold all to often it comes from the company that bought it. As you have never had an agreement with this company you are under no obligation to pay them anything . They send out the notice you at the time of receiving the notice simply call them and tell them you have no agreement with them and unless they can prove you do by showing the valid contract with both signature`s you will assume there is no debt. Give them 10 days to provide it and put that in writing send them it and sit back and wait

I assure you the day they receive that notice they are going to call you and threaten you or get you to concede that the debt exists. And yes it does but not with the company who purchased it . Simply explain that they are third party participants and have no standing remind them that they have until the date specified to provide the information requested or the debt does not exist .

You are also very smart to read the fine print as you say. All people assume that the conditions by which they are receiving things are the providers conditions but if there is something in the agreement you do not like you have the right to cross it out and initial it . Its a contract just like when you buy a house conditions are flexible to your liking just as much as the other parties

sky, Actually I worked for a company that sold manufactored homes for a few years and I seen "tricks" pulled on people that sickened me. I had to leave due to some of the dirty tricks so its "shame on me" for getting caught up in this crap.

it does involve the small print. We all know how we sit there signing off on home loans, one page after another for over an hour it seems. I know when I bought my home that I wasn't thinking of anyone playing tricks on us.