The thing about useful stuff is

No wonder Citi are hacked off Monday, October 06, 2008

Image via WikipediaIs it any wonder that Wachovia shareholders and the Federal Deposit Insurance Corporation are reportedly pleased that Wells Fargo stepped in to buy Wachovia from under Citigroup's nose - likewise is it surprising that Citi are miffed? According to reports

Citigroup said last Monday it had reached a preliminary agreement to pay $2.2bn for Wachovia’s banking assets, in a deal that included an FDIC guarantee for any losses beyond $42bn on a $312bn mortgage portfolio. But Wells Fargo said on Friday it signed an agreement with Wachovia to buy the whole of the company for $15bn without any government guarantees.

Here's the kicker - Citi now want to sue Wachovia for $60bn for breaking an exclusivity agreement on the deal. Hmmmmm. Might that suggest that they knew they were getting a steal if those are their perceived damages.

Labels: Citigroup, Federal Deposit Insurance Corporation, Wachovia, Wells Fargo

posted by John Wilson @ 8:42 PM Permanent Link ,

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From one banking giant to another Friday, September 26, 2008

Reuters has a profile on Jamie Diamond, saviour of Wall Street and CEO of JP Morgan. At the end of the piece they comment on his man-management style and the high regard he evidently has for his peers.

People who know him say Dimon cuts his peers no slack. On a conference call for Wall Street chieftains while JPMorgan was rescuing Bear Stearns, Dimon shot down a somewhat technical question from Citigroup Chief Executive Vikram Pandit, who has a doctorate in finance. According to published reports, Dimon told Pandit: "Stop being such a jerk."

Do you think he was subsequently visited by HR to discuss his "issues" and need for inter-personal skills training?

Labels: Citigroup, Jamie Dimon, JPMorgan Chase, Vikram Pandit, Wall Street

posted by John Wilson @ 8:59 AM Permanent Link ,

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Huge Wall St settlement for Auction Rate Securities "Victims" Friday, August 08, 2008

Image via WikipediaAccounting to the FT,

Citigroup is to buy $7.5bn worth of ARS from retail investors in the next three months while Merrill Lynch announced that it would buy back ARS it sold to investors starting next year. There are currently $12bn of such holdings but Merrill said it expected there would be $10bn by the time it begins its buy-back. Meanwhile, UBS was on Thursday night close to finalising the details of its own deal with regulators.
Apparently Citi also has to pay a $100m fine to settle claims from regulators that it had misrepresented ARS as liquid, cash-like securities.

I previously wrote about the ARS market here.

These are staggering deals, imposed by the regulator to "protect" Main Street from being financially injured.

Prior to markets seizing up, ARS markets were indeed very liquid and paid higher returns to investors than bank deposits, with rates set through an auction clearing process. To my knowledge, relatively few investors suffered any capital losses since the lenders remained solvent. What disappeared was the liquidity that enabled people to release cash by selling their holdings i.e. buyers simply disappeared regardless of rates on offer. Lenders, as a consequence of being unable to refinance elsewhere, were also unable to buy back the securities despite the punitive rates many of them were obliged to pay under the terms of the securities.

The penalities / settlement redresses two issues

1) Wall Street brokers failed to alert people to the fact that the markets were becoming increasingly illiquid i.e. negligent in their duty to clients. Obviously had they done so, that would have simply accelerated the collapse in such markets.

2) The banks themselves took advantage of clients by offloading increasingly illiquid stock onto them, prompted by internal risk concerns, whilst maintaining their stance that there were no problems.

What is most disturbing about this episode is that an efficient cash market and the related instrument has been irreputably harmed to the detriment of future borrowers and lenders alike.