Filed under: Newsletters, Citigroup Inc. (C), Stocks to Sell, Financial Crisis
Many investors are calling brokers or turning to blogs and asking, “Is it time to buy the financials? Aren’t they all safe now? Aren’t they cheap?”
The bounce started with the rescues of Citigroup (NYSE: C), so let me begin right there.
The recent bailout of Citigroup is deemed to be in the billions; but the future potential amount needed at Citi, and the other banks, is in the trillions. The difference can be seen in page 21 of Citigroup CEO Vikram Pandit’s town hall presentation to employees on November 17. Page 21 is a perfect metaphor for all that has gone wrong and continues to be wrong in the financial system. The page is purposely obscure. I know of no journalist or published analyst who spent any serious time — and that means more than five seconds — considering the math presented on that page.
Using household terms such as “QSPEs” and “VIEs,” Pandit revealed that Citi has more than $1.2 trillion dollars in off-balance sheet assets. These off-balance sheet entities are similar in structure to Enron’s SPVs (special purpose vehicles) Citi and other banks created, and in the past backed, and they hold assets of unknown quality. I can only assume if their value was known, and anywhere near par, they would be on the balance sheet.
Page 21 has two graphs. One is a bar chart for QSPEs (qualifying special purpose entities, similar to Enron’s SPVs) that describes in very succinct terms various chunks of assets. First: $667 billion in mortgage-backed securities, which has a tag “Citi does not bear credit risk. Unlikely that majority will come on balance sheet.” If there is no credit risk, why not put them on the balance sheet or tell us what they are?
Continue reading Stay away from Citigroup (C)
Stay away from Citigroup (C) originally appeared on BloggingStocks on Fri, 28 Nov 2008 13:30:00 EST. Please see our terms for use of feeds.
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