US Banks (2008)

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Postby Shakespeare » 26 Sep 2008 10:22

What part of WaMu is JPM buying
The part that works [the branches].
what part is the government running
The part that doesn't work [the mortgages].
how is this different than the Paulson Piggy Bank?
It isn't. :roll:

(JPM wins, the taxpayer is f*cked.)
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Postby AltaRed » 26 Sep 2008 10:45

I know JPM isn't picking up the toxic loans but I don't see where the gov't is either. What I've read so far suggests that shareholders and bondholders are the ones who are f*cked cause they won't recover much, if anything, from non-recoverable toxic loans.
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Postby Shakespeare » 26 Sep 2008 10:54

I don't see where the gov't is either
Because of the leverage, I suspect that the taxpayer, not JPM, will wind up with the bill for any losses over the shareholder/bondholder value.
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Postby kcowan » 26 Sep 2008 11:58

So is FDIC picking up the branch liability or is it JPM? Or is JPM picking up the balance over $100k each?

Toxic mortgages: is this the junk that will be foisted on the taxpayers by the Paulson Piggy Bank. So is he really bailing out the WaMu shareholders/bondholders? $700 billion to bail out shareholders/bondholders? How can that make any sense?

Is this just another event like Lehman to stimulate kneejerk action by Congress?
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Postby parvus » 26 Sep 2008 19:11

Government Seizes WaMu and Sells Some Assets
By taking on all of WaMu’s troubled mortgages and credit card loans, JPMorgan Chase will absorb at least $31 billion in losses that would normally have fallen to the F.D.I.C.

From Chase-WaMu Deal, a Bank to Rival BofA
But JPMorgan is not taking any chances. It will write down around 17 percent of the value, or about $31 billion, of the loans on WaMu’s books. It might have to write down another $18 billion of WaMu assets in the future, according to CreditSights.

Even with that, it still believes that the acquisition will be 15 percent accretive to next year’s earnings.

That’s because JPMorgan let the bank fail before taking it over, wiping out bondholders of the parent bank, as well as equity holders. So it will not be responsible for paying off the $14.4 billion in debt associated with the bank holding company. Equity holders, who have seen WaMu’s market value drop from around $35 billion last year, will also be wiped out.

Avoiding those liabilities will provide a cushion to absorb WaMu’s losses — and could contribute to a large profit for JP Morgan shareholders.


BTW, Citi is kicking the tires at Wachovia.
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Postby parvus » 28 Sep 2008 20:18

Citigroup and Wells Fargo Said to Be Bidding for Wachovia
Either way, Citigroup and Wells Fargo are unlikely to bid more than a few dollars a share for Wachovia, substantially less than the $10 at which its shares were trading Friday. It was unclear whether bondholders would also take a steep discount on their holdings, or be entirely wiped out.

Other aspects of the deal also remain in flux. One is whether all of Wachovia is up for sale, or whether the company might be carved up.

Citigroup and Wells Fargo, for example, might bid only on Wachovia’s retail banking business. Wachovia retail brokerage, the second largest behind Merrill Lynch, might remain independent. It was unclear what would happen to Wachovia’s small investment bank.

Both Citigroup and Wells Fargo are interested in acquiring Wachovia’s branches and roughly $400 billion in deposit financing. For Wells Fargo, a deal would extend their branch banking network eastward across the Mississippi, creating a nationwide franchise that would compete with Bank of America and JPMorgan Chase. Citigroup and Wachovia declined to comment. Wells Fargo did not immediately return calls seeking comment.

For Citigroup, the deal would vastly expand its retail branch network after struggling to build one for years. It would also give it access to more stable customer deposits, so it could rely less heavily on outside investors for funds. Bank executives there see this as game-changing opportunity.

Still, both Citigroup and Wells Fargo have serious concerns about taking on Wachovia’s $800 billion loan portfolio. In particular, they are worried about a big swath of troubled mortgages tied to the 2006 acquisition of Golden West, a California lender that specialized in pay-option mortgages. But lacking the time for more than a crude analysis of Wachovia’s finances, both banks are trying desperately to assess the risks.
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Postby kcowan » 29 Sep 2008 11:01

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:lol:
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Postby biker » 29 Sep 2008 19:17

Here is a letter from the CEO of Citi re the aquisition----------
From: vikrampandit@citi.com [mailto:vikrampandit@citi.com]
Sent: Monday, September 29, 2008 10:37 AM
To: vikrampandit@citi.com
Subject: Wachovia

Dear Colleagues,

Today, Citi took another bold step to expand our capabilities to serve
clients in the U.S. and strengthen our overall capital and liquidity
positions. We reached an historic agreement-in-principle to acquire the
banking operations of Wachovia Corporation (NYSE: WB) for approximately
$2.16 billion in stock.

Included in the transaction are all of Wachovia bank branches and
deposits, the corporate and investment bank, and private bank.
Wachovia's retail brokerage and asset management business are not part
of the transaction.

The addition of Wachovia immediately establishes Citi as a leading U.S.
retail bank, with deposits totaling $600 billion and a U.S. deposit
market share of 9.8%. After closing, our total deposit base of $1.3
trillion will exceed that of our nearest U.S. competitor by $350
billion.

Wachovia's very attractive retail bank footprint is highly complementary
with that of Citi, with just 31% of Wachovia branches located in
existing Citi markets and a strong, attractive customer base. In fact,
the transaction propels Citi to a top three ranking in seven
metropolitan statistical areas (MSAs): New York, Miami, Atlanta,
Washington D.C., Las Vegas, Charlotte, and San Francisco. When the
transaction closes at the end of December, Citi will have about 4,300
branches and 28,000 fee-free ATMs in the U.S.

The transaction also brings a strong, highly complementary U.S. cash
management platform to Citi's leading Global Transaction Services
business; a strong U.S. mid-market corporate banking franchise; and a
small yet successful and competitively significant U.S. private bank
that Citi intends to integrate into its existing Global Wealth
Management business.

The acquisition of Wachovia is consistent with our ongoing efforts to
"get fit" as an organization by greatly enhancing our U.S. banking
capabilities and adding a team of exceptional managers and employees to
our ranks. Our press release provides additional details about the
overall transaction and I encourage you to read it
(http://www.citigroup.com/citi/press/2008/080929a.htm).

Specifically, I want to highlight that this transaction provides Citi
with important downside loss protection through the FDIC from Wachovia's
loan portfolio and caps credit losses well below Wachovia's earnings
power. In addition, we look to achieve substantial expense savings and
ongoing efficiencies for Citi through integration and building on
Wachovia's best-in-class retail technology platform.

To maintain our strong capital position, we will be raising additional
capital and our Board has decided to reduce the quarterly dividend to a
level more in line with our leading competitors. These are prudent steps
given the ongoing volatility in the markets and the challenging economic
environment around the globe.

As I said before, the unprecedented changes in the financial services
industry provide unique opportunities for strong companies such as Citi.
Today's agreement will transform our U.S. banking operations and we look
forward to integrating these two leading banking franchises to better
serve clients.

Vikram
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Postby mpav » 29 Sep 2008 19:45

I think we will see a US banking system more similar to Canada - 4-6 really large banks with the bulk of the business - it still is some time before this is truly a buying opportunity.

The banking sector really represents the economy, so even with historic lows, all the value triggers going off, this may take a year to unwind and settle down.

Banks issueing equity to buy other banks, not knowing exactly what they have in store.

I think the bet at this stage is decide who will those 4-6 banks be - Wells, USB, BofA, JPMC, Citi? - and then watch very closely for the next year, and occasionally nibble on some equity...
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Postby WishingWealth » 29 Sep 2008 21:03

Does the CITI/Wachovia count as a M&A?

If yes, I hope Wachovia's CEO will be generously 'bonused'.

WW
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Postby kcowan » 29 Sep 2008 23:59

But the FDIC owns some claim on their shares so be careful about investing in them....
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Postby augustabound » 30 Sep 2008 05:59

biker wrote:To maintain our strong capital position, we will be raising additional
capital and our Board has decided to reduce the quarterly dividend to a
level more in line with our leading competitors.


So dilution and a dividend cut, the double whammy.
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Postby Shakespeare » 03 Oct 2008 08:54

Wells Fargo buys Wachovia for $15.1-billion
In an abrupt change of course, Wachovia Corp. said Friday it agreed to be acquired by Wells Fargo & Co. in a $15.1-billion (U.S.) all-stock deal, wiping out Wachovia's previous plan to sell its banking operations to rival suitor Citigroup Inc.

A key difference is that the Wachovia deal will be done without government assistance, while the Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp.
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Postby pitz » 11 Oct 2008 01:32

Latest Paulson plan is to buy equity in the banks, in exchange for cash.

Essentially, new equity issuance will be highly dilutive, since its likely that equity infusions would come at current market prices on the banks.

Is this the proverbial 'take the shareholders out of the insolvent companies and shoot them' move?

Logically, the stock of every sector and firm, except US banking, should skyrocket on the news. And US/Canadian banks that are perceived to be strong and highly capitalized should get a nice bounce..

Any fundamental problems with my logic, other than logic doesn't work in an irrational world?
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Postby sweedy » 12 Oct 2008 02:09

pitz wrote:Latest Paulson plan is to buy equity in the banks, in exchange for cash.

Essentially, new equity issuance will be highly dilutive, since its likely that equity infusions would come at current market prices on the banks.

Is this the proverbial 'take the shareholders out of the insolvent companies and shoot them' move?

Logically, the stock of every sector and firm, except US banking, should skyrocket on the news. And US/Canadian banks that are perceived to be strong and highly capitalized should get a nice bounce..

Any fundamental problems with my logic, other than logic doesn't work in an irrational world?


I have the same logic as yours. But I suspect I will face margin call again next week.
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Postby marty123 » 12 Oct 2008 12:14

pitz wrote:Is this the proverbial 'take the shareholders out of the insolvent companies and shoot them' move?


The boards would not take the feds up on their offer if it wasn't in the best interest of the shareholders. It is probably best for shares to have a diluted value rather than being or becoming worthless. If they don't want the capital infusion, they can say no.

Essentially, new equity issuance will be highly dilutive, since its likely that equity infusions would come at current market prices on the banks.


If it were my tax dollars (i.e. I was an American), I'd be upset if this took place at current market prices. Any such rescue should be made on similar terms as the AIG rescue, or the BoA cash infusions from offshore sovereign wealth funds (i.e. the government should offer less than market value or get preferential treatment).
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Postby Shakespeare » 13 Oct 2008 20:54

U.S. to Buy Stakes in Nation's Largest Banks
As part of its new plan, the government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp., Merrill Lynch, Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street, according to people familiar with the matter.

Not all of the banks involved are happy with the move, but agreed under pressure from the government.
I'm flabbergasted. The Socialist States of America? :wink:
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Postby biker » 14 Oct 2008 11:51

Jefferson would not have been surprised nor flabbergasted.


'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.'
Thomas Jefferson 1802



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Postby scomac » 12 Nov 2008 11:25

Word out this morning on BNN that US banks using federal funding facilities like TARP have been advised to "curb payment of dividends" either voluntarily or it will be mandated. :shock:

What is the potential for this sort of action on a global basis when one considers that the gov't interventions have been co-ordinated?
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Postby bubbalouie » 17 Nov 2008 10:39

I find it interesting that Citigroup was never oversold in this crisis until Nov 12 when its RSI hit 23.

The last time it was that oversold was July 15 when it rallied from $14.56 to $21.12. It's RSI was 20.2 on that day.
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Postby millergd » 21 Nov 2008 22:39

Will Citigroup (NYSE: C) make it through the weekend?

Goldman says "not interested" in Citi
Yet Goldman -- whose stock rose 2.5 percent Friday and which now has about the same market value as Citi -- continues to resist such a deal because it would be disruptive to Goldman's culture and could make it vulnerable to big losses from some of Citi's assets, the source said.

That reluctance has not changed since Goldman Chief Executive Lloyd Blankfein was encouraged by government officials to call Citi CEO Vikram Pandit. The call, which took place in September, lasted less than a minute and neither side was interested, people familiar with the matter said.
A high level view is that Citi's board and CEO are not on the same wavelength. Doesn't sound like there is a lot of great crisis management skill at work in the Citi organization:
In a call with senior managers on Friday morning, Pandit reportedly said he intends to keep the bank whole and independent. But events appear quickly to be overtaking Pandit, the former Morgan Stanley executive and hedge-fund manager who took over as CEO last year.

Citigroup's board was meeting Friday to discuss its options, according to a report by Bloomberg. The board may decide to overrule Pandit and sanction sell-offs.

~millergd~
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Postby cycle » 22 Nov 2008 22:52

Here's a hint:
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Postby Peculiar_Investor » 22 Nov 2008 23:39

Based on Friday's market cap for Citi, each of Microsoft, Cisco or Apple could buy all of Citi with their cash on hand. Who would have guessed that as an impact of the tech bubble bursting as few years back.
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Postby Shakespeare » 22 Nov 2008 23:43

[url=http://www.nytimes.com/2008/11/23/business/23citi.html?pagewanted=1&_r=1&hp]The Reckoning
Citigroup Pays for a Rush to Risk[/url]
The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser....

When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.

And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another....


“They pushed to get earnings, but in doing so, they took on more risk than they probably should have if they are going to be, in the end, a bank subject to regulatory controls,” said Roy Smith, a professor at the Stern School of Business at New York University. “Safe and soundness has to be no less important than growth and profits but that was subordinated by these guys.”

Y'know, the same set of guys keeps morphing from business to Washington and back again. Just a little bit of conflict of interest there, folks.
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