Monday, November 17, 2008

Town Haul With Citibank

How did their loan loss reserves get so low? This chart looks like the definition of "FICO madness". Was it all current loss experience, or did somebody decide that the appropriate level of reserves was not much more than what was allowed to count toward Tier 2 capital?

Note to self: credit cards, even at 15% average rate, are not sunflowers that grow to the sky.

Just-in-time loss reservering:


What ever is inside "other loans" and "investments"? Leveraged private equity stuff", commercial real-estate? Synthetic CDOs? (Most of the "Goodwill" is disallowed when calculating capital adequacy).

They have about $100Billion in Tier1 capital and $25 billion in loan reserves, against these assets and all their off balance-sheet exposures. Is it enough? Off hand, it looks too hard to say. It does look unlikely that, on their own, credit cards and RMBS, marked down, would be sufficient to 'break the bank', right?



Something about their jobs cuts and the amount of targeted savings doesn't seem to square, but others know the company better than I do...

I'm so glad that, during a downturn, they can achieve 8% core capital, on the backs of job cuts, with a full guarantee of their debt, and a giant spinnaker-like TARP-sail running with the winds. What is wrong with this picture? More:

We distributed $2.1 billion in dividends to shareholders during the quarter. On October 20, 2008, as previously announced, the Company [the Board of Directors] decreased the quarterly dividend on its common stock to $0.16 per share [about $3.4 billion at an annual rate...]


For the die-hards who are targeting certain people on Citi's board, it's not clear which business lines actually "deserve" job cuts. Are they going to close retail branch offices? Cut dealmakers? The knee-jerk demand to make cuts seems ... reckless. You need some kind of model of what the core business requires. Without it, one would look on knee-jerk job cuts unfavorably, as a costly prescription without a diagnosis...

No comments: