Filed under: Citigroup Inc. (C)
When Citigroup Inc. (NYSE: C) reports tomorrow, one big question on investors’ minds will be how big a charge against its earnings it will take for its Collateralized Debt Obligations (CDOs) and other Level 3 assets. The amount of the charge could range from $9 billion to $24 billion.
I appeared this morning on CNBC to discuss bank earnings with Charlie Gasparino and Andrew Ross Sorkin of the New York Times. I got into a bit of a disagreement with Gasparino, who reported earlier on the wide range of that charge. He thought that there was a strict amount for the charge. However, as I pointed out, Citigroup’s Vikram Pandit wants to take a big bath write-down, but can only do so if he can raise enough capital to offset it. (Moreover, as I did not mention on the air, the very fact that Gasparino was discussing such a wide range of write-downs indicates how much management discretion is involved.)
I argued that since there is no active market for the Level 3 assets that Citigroup is writing down, there is significant management discretion in the amount of the charge. Management could base the write-down on the decline in the ABX, an index of subprime creditworthiness, or on the values that other institutions — such as hedge fund Citadel — have used, which range from 27 cents on the dollar to 45 cents.
Continue reading Will Citigroup write-down $9 billion or $24 billion?
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