Citi’s leverage: 280! (Leverage by the Numbers, Part 2)
November 24, 2008 – 11:25 am
As I noted in my last post, I was being charitable when I calculated leverage ratios for the big banks. Citigroup, for instance, has $165 billion of “Other Assets” listed on their most recent balance sheet. The company deliberately does NOT provide additional disclosure regarding what’s in that bucket, not in the quarterly OR annual filings. But an enterprising Bloomberg reporter seems to have tracked down at least one other intangible item lurking there, the same one that Fannie/Freddie counted as “capital”: Deferred Tax Assets (hat tip JL).
As of Sept. 30, Citigroup’s net DTAs were about $28.5 billion, after subtracting deferred-tax liabilities. That represented 29 percent of the bank’s common shareholder equity and a whopping 80 percent of tangible equity, which excludes goodwill and other intangible assets. On a gross basis, DTAs were even bigger; the bank hasn’t disclosed how much.
If you subtract that $28.5 billion from assets and from tangible common equity, Citi’s leverage ratio goes from 56x to, um, 280x. That’s because the denominator, tangible common equity, falls to only $7 billion. Over which we still have nearly $2 trillion of on-book assets. And again, we’re STILL NOT INCLUDING off-balance sheet commitments of $1.2 trillion. David Reilly in the WSJ recently estimated that they may have to bring at least 20% of that amount back onto the balance sheet. So the numerator in our leverage calculation continues to explode.
Everyone’s pointing at Citi because they’re the ones in the news THIS week. But mark my words, all of the other banks will come crawling to the Fed and Treasury, demanding that the government absorb hundreds of billions of losses lurking on their balance sheets.
This is short-termism at its worst. Sure the stock market is happy today that Citigroup isn’t going to fail. But what happens when other banks come calling and the $7 trillion bailout (Bloomberg’s number) balloons to $10 trillion? What happens when it’s clear there’s no way the government can possibly borrow enough to actually fund its guarantees?
On that day, I don’t want to be holding dollars.
Posted in Dollar, Fed, Wall Street, accounting, bailout, banking, bubble, credit crunch, gold, stocks |
6 Responses to “Citi’s leverage: 280! (Leverage by the Numbers, Part 2)”
WHERE IS THE F_ _K_ _ G OUTRAGE OVER THIS GIVE AWAY!
The tax payer gets what? A 7.8% STAKE! What a joke! $45 Billion invested is $25 Billion more than 100% of Citi’s Market Cap as of Friday’s closing price. And that doesn’t count the BILLIONS MORE the tax payer will pay on loses!
The tax payer SHOULD HAVE A 100% STAKE with all other sharholders wiped out PERIOD!
CITIGROUP IS AS BANKRUPT AS A COMPANY GETS! WHERE IS THE OUTRAGE?
By Jim T on Nov 24, 2008
Rolfe - where can one find current Level III and off-balance-sheet assets data for the others who’ll come crawling to Uncle Sam to guarantee their assets ? (MS, GS, JPM, BAC (incl MER), BKK, STT, and WFC)
By Murph on Nov 24, 2008
Who cares what it costs? Lets say that the bears are right and we are the verge of a huge devaluation of the dollar, well then spend them like crazy while thye are worth something.
A better idea would be to get a load of cross currency swaps in place so if the dollar falls we have a hedge, oh wait we already have that.
Lets say this costs 100% of GDP so say 15 trillion, if we spend that and somehow manage to avoid a depression surely it will be worth it.
By Jimmy joe on Nov 25, 2008
Murph, my blogging buddy Mr. Mortgage has a fantastic chart that lists Level 1, 2 and 3 assets for all the major financials. Check it out here.
By RolfeWinkler on Nov 25, 2008
Outrage? There will be none of that talk. Aside from this site and a scant few of us who paid attention in school/life, no one cares. Yep, that’s right the majority of America does not care. Its depressing, I know. Brad Pitt’s secret tatoos drum up more interest. –But its the truth. Do a little unscientific sample next time you are waiting in line at the grocery. Just blurt out, “hey lady, yea you reading the National Inquirer,do you think the Citi bail was sweet or sour?” When she looks back at you as if you are sexual predator, you will know what I am talking about. As long as the sheeple are allowed to get their credit card limits back up to pre crisis limits and are able to trade in last year’s auto purchase for the new model with IPOD docking station, everything is great. And Hank P made sure of that today, he has guaranteed unbridled consumer spending will continue until the Chinese finally throw their chopsticks up. Yep, thats right, we are going to buy paper representing credit card debt, student loans, and auto loans. And thats precisely why it will fail. We are going to continue to spend, spend, spend…. We will continue our current head winded course. Drive the honda another year? No way, loser! Pay for the Grey Goose with the cash in your pocket? No way dude, I need it for my holdem game later tonight! Go to a community college for a couple of years and wait some tables to cover? Hell No! All of debris I went to high School is hanging there. When short termism sets in Rolfe doesn’t want to “…be holding dollars.” I on the other hand will be holding my Glock.
By Mickey on Nov 26, 2008
To correct the crisis for the majority, not the minority.
1- Reduce every salary of every employee, eliminate any and all bonues,eliminate income from shareholders, with the strong possibility they could be wiped out entirely. This reduction is an across the board reduction to recieve any sort of taxpayer funds from any branch of the government. If taxpayer’s money is received or obtained, it must be used for the following two items solely.
2- Refinance every qualified homeowner who has negative equity to a reduced principal balance based on the New Market Value at 29/41% ratio’s stablizing the market. The cost to cure is 1.43 Trillion Dollars. The cost can be split between the government and the banks or investors of the mortgages. The investor would receive the principal balance of 80 cents on a dollar or the option of retaining a qualified homeowner at a reduced principal balance with a fixed rate for cash flow purposes. THIS WILL CORRECT THE UNDERLYING PROBLEM OF MAIN STREET.
stopping the deflationary housing cycle of lowering prices.
Just a note- the total outstanding mortgages are 11.3 Trillion Dollars, the current problem is not the mortgages but the operating system of Wall Street’s wizary.
3-Government guarantees will be issued on NEWLY issued mortgages, student loans and business loans that were underwritten with the three c”s of lending implemented.
4-There will be no TAXPAYER guarantees issued on from any branch of the government on losses experienced on ANY previously issued debts/loans that benefitted the GREED of Wall Street nor on charge cards.
4- Any funds recieved or to be recieved from the taxpayers is to be used solely for the lending purposes as stated above. Not for capital reserves or obtaining additional assets to cover their losses.
5- Deleveraging of all financial entities must take place including the shadow banking system to a ratio of 12:1. This will absolutely cause many banks to fail due to their own past business decisions and greed.
6-There has not only been a housing boom-bust cycle, but a credit boom-bust cycle that the government is unwilling to acknowedge. The public can not continue to borrow to fuel the economy, giving their money directly to banks is giving the banks alittle more time to withdraw profits from the ecomony for the minority of the USA.
6- The bulk of the taxpayers money already allotted to “Banks” of 8.4 TRILLION DOLLARS is to be used for the creation of jobs in areas of intrastructure, energy, education, manufacturer, education or any field that creates and maintains employment in the USA. The balance of the funds could be used as a guarantee against the 6.84 Trillion Dollars of the public’s CASH bank deposits that were overleveraged by the banks.
When you fix a product or item, do you start at the last step in the directions or the first step?
By susan day minerly on Nov 30, 2008