Citigroup...

Madlen Read of AP:

Citigroup CEO Resigns; Interim Named: : Citigroup Inc. Chairman and Chief Executive Charles Prince, beset by the company's billions of dollars in losses from investing in bad debt, resigned Sunday and is being replaced as chairman by former Treasury Secretary Robert E. Rubin.

The nation's largest banking company announced Prince's widely expected departure in a statement following an emergency meeting of its board. Citi also said Sir Win Bischoff, chairman of Citi Europe and a Member of the Citi management and operating committees, would serve as interim CEO. Rubin, a former co-chairman of Goldman, Sachs & Co., has served as the chair of Citi's executive committee, and it was also expected he would take a greater role in leading the company.

In a separate statement, Citi, which took a hit of $6.5 billion from asset writedowns and other credit-related losses in the third quarter, said it would take an additional $8 billion to $11 billion in writedowns...

A remarkably large number considering that nothing terrible has happened to any of the underlying--nothing to interest rates, nothing to GDP, nothing to employment, and only a little so far to Riverside County, CA housing prices. But the total is still less than ten percent of Citi's book capital.

Comments

[Ponzi Q. Globalization]

"Rubin, a former co-chairman of Goldman, Sachs & Co., has served as the chair of Citi's executive committee, and it was also expected he would take a greater role in leading the company."

Rubin will use his political connections to try to get some sort of a bailout. I can't wait to see what sorts of politico-financial magic will be used to make worthless securities worthful again! I'm sure we're all going to be picking up the tab for the magic.

"A remarkably large number considering that nothing terrible has happened to any of the underlying--nothing to interest rates, nothing to GDP, nothing to employment, and only a little so far to Riverside County, CA housing prices."

Nationally, housing prices aren't rising. Rising housing prices was a necessary condition to keep the latest pyramid scheme of our financial industry going.

Who would have thought that housing prices would eventually stop rising?! Not Wall Street it seems. Well, the important people already cashed out big time. And isn't that what it's all about?

[Jay Livingston]

The AP story identifies Rubin by his connections to Goldman and Citi. Apparently ion the business press, his term as US Secretary of the Treasury is not worth mentioning.

[kharris]

Ponzi,

What you suggest may prove true, but I suspect the more immediate issue is that Citi very badly needed a "name" to run the place, and there is always a short supply. Rubin is available, already an insider, and has big credibility. Credit rating downgrade is one thing. Further credibility downgrade had to be prevented. Rubin fills the bill. Oh, and it probably didn't hurt that Rubin had some say in who was chosen.

[bakho]

Government needs to step in to put limits on the predatory lending. By keeping it under control, they level the playing field. Otherwise, companies with high risk strategy and well above average profits will get a leg up on their competitors. Lack of regulation encourages short term strategies that are not sustainable long term.

Of course these companies are going to take hits on their profits. No government bailout is going to restore an unsustainable level.

[save_the_rustbelt]

I wonder how many of those hot shots will give back their bonuses?

Jay, the reports I have seen mentioned Rubin's government service.

Rubin again, like a bad penny, keeps coming back. Hi yo globalization.

[save_the_rustbelt]

Prof. DeLong is puzzled because nothing has happened to employment.

Employment has been shifting since NAFTA, in terms of quality of jobs and security of jobs.

Looking at averages from a distance, everything looks fine.

The devil is in the details.

[MattF]

The AP item and the article in this morning's NYT suggest that there's gonna be a whole lot of repricing of assets at Citi.

[Sam Taylor]

Is this simply another object lesson reminding everyone to be very careful in checking the assumptions of the quants, the financial "engineeers" who believe that lasting profits can be created with clever aritimetic.? Brad is basically right in that all the economic fundamentals seem to have been running in Citi's direction.

[Johnkay]

Undoubtedly Prince was receiving a huge salary with bonuses and got the job because of his connections.

[Matt]

Robert can no longer be embarrassed by Hillary econo-fantasies.

[tjallen]

Brad says, "considering that nothing terrible has happened to any of the underlying--nothing to interest rates, nothing to GDP, nothing to employment, and only a little so far to Riverside County, CA housing prices."

Still in denial, heh? What has happened is clear, investors don't want those bundled mortgages, they don't trust them, they don't trust the people who bundled them, or the ratings on them. The buyers have left the market.

Now you are telling them, it's not rational, this is a sound market fundamentally. But if there are plenty of other investment vehicles they can choose, why should they risk their money on financial intermediaries which they don't trust or lack knowledge about? And if they buy them, hoping for the best, and there are problems, who will be there to sell them to? Except for the vultures, the buyers have left the market.

[ethan]

Those with an interest in this development may want to check out Dean Bakers comments of a day or so ago at American Prospect, Beat the Press.
I think this will give you the link:
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=11&year=2007&base_name=robert_rubin_and_enron#comments

[Cranky Observer]

I remember when the current incarnation of Citicorp was formed I asked one of our finance dudes "What services exactly can a $1 trillion bank provide that a $500 billion bank cannot?". He never did get back to me with an answer.

Cranky

[JRip]

From Sept 30 Financials

$134.8 billion in Level 3 Assets
and
$127 billion in shareholder equity

Level 3 assets are measured how?

a line from their 10-Q:
Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable.

[NYT]

"But the total is still less than ten percent of Citi's book capital."

Yes but their book capital (127B before write-off) includes $39B of Goodwill and Intangible Assets of $23B. That leaves tangible book, before write-off of about $65B

And this does not include any write-down of their off-balance sheet SIVs or any additional write-downs on their still outstanding pier loans.
And they are the proud owners of 134B in Level-3 assets.

[christofay]

Here's a rumor; the Chinese are going to buy 30% of Rubin who will then use the $1 billion to invest in a SIV which will in turn buy a special Citigrope preferred.

[James]

"But the total is still less than ten percent of Citi's book capital."

Well, yes, of the swag they took in writeoffs so far, which they admit is a guess, and by my estimate was pretty conservative. Their total Level 3 asset exposure is about 135 Billion which exceeds their total shareholder equity.

Let's see what happens when they try to grasp THAT with both hands. Ouch.

[christofay]

Goldmine Sacks, Citigrope, Bare Stems. Viva Castro! Socialism lives, or they will let off the gun they hold to our heads.