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Part of our job here is to call “Shenanigans” when we see them.Earlier this week, Citigroup (C) announced that they had cut a dealwith the Abu Dhabi state-sponsored fund, AIDA, to pump $7.5 billioninto the company. This has since been widely hailed by the media as thereason that the market has begun to rebound. --- Balderdash! --- Teeka Tiwari
Ateighteen years of age, Teeka became the youngest employee at LehmanBrothers. Two years later he shattered convention once again bybecoming the youngest Vice President in the history of the company. Bythe time he was 23 he had made and lost a million dollars. At 27, hewas a millionaire several times over.
Today, Teeka is among thetop few professional investors worldwide, and manages a top-performingforeign hedge-fund which is closed to new investors.
In June of2006, Teeka officially joined Tycoon Publishing as Chief InvestmentOfficer of the trading service Point and Profit, making hiswealth-building acumen available to the average individual investor forthe first time.
"Ifyou closely examine the Citigroup deal, you will see that it isexecutive denial at its finest, and is not in the interest ofshareholders… well, maybe Abu Dhabi's shareholders. After all, theymanaged to secure 5% of an iconic American bank at multi-year lows forthe equivalent of about 5 billion Euros. Oh, and did I forget tomention that it's a convertible preferred that pays 11% and isconvertible into common stock between $31.83 to $37.24 a share?
So,why did Citigroup agree to dilute existing shareholder interests by 5%?Why didn't they just cut the $10 billion in dividends that they payeach year? More importantly, why wasn't this deal done with an Americaninstitution?
I'll tell you why. Citigroup didn't go with anAmerican buyer because any American buyer would have demanded a seat onthe board and a voice in righting the ship. Heaven forbid that thecompany get an outspoken voice for change!
Their foreignfriends are apparently quite happy to take their 4.9% stake with noboard seat. They took 4.9% so they didn't trigger the filingrequirements of a 5% stake. Mmm, I wonder why? What do they have tohide?
Citigroup is making decisions akin to the executivethat gets laid off but wants to keep up appearances. Our laid off execknows he can't afford that country club membership and his big MercedesBenz anymore, but he's determined not to be embarrassed in front of hispeers. Too late, buddy, the problems at Citigroup are just too big toindulge in that type of denial.
The company holdsapproximately 41 billion dollars in direct sub-prime exposure viastandby loan guarantees, but they hold it “off balance sheet”.
Rememberthat the Structured Investment Vehicles (SIVs) borrowed billions byissuing short-term commercial paper at low rates, then went out andbought riskier long-term bonds at higher rates with the proceeds. Inorder to receive an investment grade on the commercial paper that theywere selling to fund their operations, the banks guaranteed that if theSIVs got in trouble they would pay back the commercial paper holders.
Well,guess what? The SIVs can't pay! The non-payment by the SIVs hastriggered the standby loan guarantees. In accounting circles, this iscalled a “reconsideration event”.
That simply means,"Hey, dummy, the risk of this vehicle needs to be reconsidered! Maybeit's time to put this changed risk on your balance sheet!”
Apparently,the triggering of the standby loan guarantees and a shiny brand new $41billion liability isn't a big enough event for the geniuses atCitigroup to acknowledge. These so called “professional money men”are indulging in the worst kind of self-deception, usually seen onlyamong rank amateurs and substance abusers.
I understand why Citi's doing what they are doing.
Theirinternal Tier 1 capital range is in danger of being violated. TheirTier 1 capital ratio (that's the ratio of bank capital to outstandingloans) currently stands at approximately 7.5%. The regulators will letyou get all the way to 6% before they'll pay you a visit, but Citidoesn't want to look weak. Their logic is if they can't even meet theirown self-imposed capital ratios of 7.5%, it's just another reminder ofhow poorly they have managed their risk.
Here's the wake-up call.
EVERYPLAYER ON THE PLANET KNOWS YOU SCREWED UP. YOU ARE NOT FOOLING ANYONE.Like a little boy attempting to whistle away his fear as he passes thegraveyard, Citi is running scared, and everybody knows it."
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Ateighteen years of age, Teeka became the youngest employee at LehmanBrothers. Two years later he shattered convention once again bybecoming the youngest Vice President in the history of the company. Bythe time he was 23 he had made and lost a million dollars. At 27, hewas a millionaire several times over.
Today, Teeka is among thetop few professional investors worldwide, and manages a top-performingforeign hedge-fund which is closed to new investors.
In June of2006, Teeka officially joined Tycoon Publishing as Chief InvestmentOfficer of the trading service Point and Profit, making hiswealth-building acumen available to the average individual investor forthe first time.
The $41B Bomb Citi Doesn't Want You to Know About
"Ifyou closely examine the Citigroup deal, you will see that it isexecutive denial at its finest, and is not in the interest ofshareholders… well, maybe Abu Dhabi's shareholders. After all, theymanaged to secure 5% of an iconic American bank at multi-year lows forthe equivalent of about 5 billion Euros. Oh, and did I forget tomention that it's a convertible preferred that pays 11% and isconvertible into common stock between $31.83 to $37.24 a share?
So,why did Citigroup agree to dilute existing shareholder interests by 5%?Why didn't they just cut the $10 billion in dividends that they payeach year? More importantly, why wasn't this deal done with an Americaninstitution?
I'll tell you why. Citigroup didn't go with anAmerican buyer because any American buyer would have demanded a seat onthe board and a voice in righting the ship. Heaven forbid that thecompany get an outspoken voice for change!
Their foreignfriends are apparently quite happy to take their 4.9% stake with noboard seat. They took 4.9% so they didn't trigger the filingrequirements of a 5% stake. Mmm, I wonder why? What do they have tohide?
Citigroup is making decisions akin to the executivethat gets laid off but wants to keep up appearances. Our laid off execknows he can't afford that country club membership and his big MercedesBenz anymore, but he's determined not to be embarrassed in front of hispeers. Too late, buddy, the problems at Citigroup are just too big toindulge in that type of denial.
The company holdsapproximately 41 billion dollars in direct sub-prime exposure viastandby loan guarantees, but they hold it “off balance sheet”.
Rememberthat the Structured Investment Vehicles (SIVs) borrowed billions byissuing short-term commercial paper at low rates, then went out andbought riskier long-term bonds at higher rates with the proceeds. Inorder to receive an investment grade on the commercial paper that theywere selling to fund their operations, the banks guaranteed that if theSIVs got in trouble they would pay back the commercial paper holders.
Well,guess what? The SIVs can't pay! The non-payment by the SIVs hastriggered the standby loan guarantees. In accounting circles, this iscalled a “reconsideration event”.
That simply means,"Hey, dummy, the risk of this vehicle needs to be reconsidered! Maybeit's time to put this changed risk on your balance sheet!”
Apparently,the triggering of the standby loan guarantees and a shiny brand new $41billion liability isn't a big enough event for the geniuses atCitigroup to acknowledge. These so called “professional money men”are indulging in the worst kind of self-deception, usually seen onlyamong rank amateurs and substance abusers.
I understand why Citi's doing what they are doing.
Theirinternal Tier 1 capital range is in danger of being violated. TheirTier 1 capital ratio (that's the ratio of bank capital to outstandingloans) currently stands at approximately 7.5%. The regulators will letyou get all the way to 6% before they'll pay you a visit, but Citidoesn't want to look weak. Their logic is if they can't even meet theirown self-imposed capital ratios of 7.5%, it's just another reminder ofhow poorly they have managed their risk.
Here's the wake-up call.
EVERYPLAYER ON THE PLANET KNOWS YOU SCREWED UP. YOU ARE NOT FOOLING ANYONE.Like a little boy attempting to whistle away his fear as he passes thegraveyard, Citi is running scared, and everybody knows it."
link
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