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Archive for the ‘Citigroup’ Category

From all appearances it would seem that U.S. banks are going to make the same mistakes all over again that they made in the last eighteen months!

Throughout 2007 and 2008 many if not most banks held onto dubious assets that they should have quickly disposed of and their stated reasoning, more often than not was that they believed that that the assets were undervalued because of the present financial climate.

In retrospect, however it can be seen that the longer they waited, the less their assets were worth and the delays cost Merrill Lynch and Citigroup more than half of their per share capital and in the case of Lehman Brothers and Bear Stearns it cost them almost everything.

Almost everyone expects losses to go higher this year which means that asset sales will once again be heavily discounted in the same way that initial bids for collateralized debt obligations and retail mortgage-backed securities were and the bottom line is that if discounted sales had been made that they would have amounted to far less than the write downs that many companies took just a few months ago.

In 2008, hundreds of billions of tax-payer dollars were spent in an effort that was meant to recapitalize various U.S. financial institutions and the money in almost every case was simply wasted!

Why?

Because the banks simply used the bail-outs to hold onto their declining assets!

Citigroup is just one bank whose management provides an example of this buffoonery with its CEO having recently stated, “We are not in a rush to sell assets”.

What else might taxpayers be expected to fund this year?

Thirty eight States are currently underfunded!

Just California and Arizona are asking for more than $10bn in federal dollars and an at least an additional thirty six States have shortfalls in their 2009 budgets!

How much are they asking for?

More than $30bn. !!

All is not gloom and doom however because there are many potential investors that have clean balance sheets that would happily invest given some kind of government guarantees, and they would more than likely free up the system a whole lot quicker than throwing money at banks that are simply holding onto declining assets will.

The main question, and it’s an open one is, “will the Obama administration encourage healthy companies to bring about fluidity or will it throw money at banks that will mostly misguidedly use the hand-outs to try and guarantee their own survival?

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