Citibank Implosion - Next Northern Rock?

[opusprime]

Citibank released their 3Q results today, with revenue down 57%. They are taking some large writeoffs for the bad bets they made on mortgage investment vehicles.

Citibank also released news today that they, JP Morgan, and Bank of America are in talks to set up a Superfund ($80 Billion) to help bail Citibank out of its SIV's (special investment vehicles) so as to keep these debt explosions off of Citi's books.

Did you get that last part, OFF THEIR BOOKS. Here is the deal folks. Our largest banks have infected the commercial paper market with low quality mortgage paper, and now noone is buying their crap anymore. Citibank has to make payment of $$ Billions on these SIV's come November. If Citibank were to bring these debt obligations back ON THEIR BOOKS, they are in essence INSOLVENT.

Not try to stir panic here, but if you have an account with Citibank that is above the FDIC insured amount, it might be a good time to consider moving it.

Here is a great run down of the current crisis. And this is only just beginning. We could all be in real trouble here soon if banks start to fail.

http://www.nakedcapitalism.com/2007/10/smoke-and-mirrors-siv-rescue-plan.html

[pnwmom]

1. I doubt that any of these giant banks would be allowed to fail

since the government can print more money and bail them out.

But watch for a lower dollar and/or higher inflation.

[NightWatcher]

2. Panic, quick, everyone RUN to the banks now!!!!

and they called grand dad crazy for burying his money in the yard in the form of silver and gold coins.


from CNN:
Stocks slip on Citi, oil prices
Dow leads decliners after Citigroup's weaker profit report, crude prices hit all-time high above $85 a barrel.

http://money.cnn.com/2007/10/15/markets/markets_0945/index.htm?postversion=2007101510


$85 a barrel? WOOF!

[RobofSWVA]

3. Citi failing would be bad for everyone

Citi group as a whole is the largest company in the world and holds in excess of $2 trillion in assets. Allowing a mega corp. of that size to all of a sudden go insolvent would mean disaster in pretty much every 1st world market and probably start a major recession everywhere. The US government isn't the only one interested in keeping them on their feet.

Let's hope they can work with Bank of America and some of the others to privately handle their loss. I can guarantee you that if there is a problem, the rich white guys in charge aren't going to feel any pain in their wallets. The only thing hurting will be their egos.

[soothsayer]

4. There were 14 million subprime loans written in the last several years.

I heard an estimate that HALF those properties will go into foreclosure in the next 6 mos. We are only seeing the tip of the iceberg now. The Mayans call the year starting in Nov (Nov 19?) 'the year of armageddon' so....maybe this is part of it!

[KurtNYC]

5. pretty sure 1492 was the year of armegeddon for the mayans

so the calendar is only 500 odd years off

[Javaman]

10. Dec 13 nt

[Blackhatjack]

6. Put Yourself in Citibank's shoes, what would you be doing right now?

First, stop the bleeding so the healing can begin.

Citibank will be 'reviewing' all of their outstanding loans and credit card accounts, and they will be 'calling' all of those accounts which are likely to run into repayment problems anytime soon.

So if you have a credit card account in good standing, expect an interest rate increase. If you are having difficulty in meeting your present payments, expect them to cut off your credit and begin imposing default rates where possible.

It will be very much like a 'de facto margin call.'

We are in for a rough ride, as evidenced by the fact that Citibank's competitors are stepping in to help rescue it. Sure sounds like they all may be in trouble.

[opusprime]

7. re: Put Yourself in Citibank's shoes, what would you be doing right now?

I can't. I'm not allowed to keep a significant portion of my debt 'off the books'.

This whole episode is a scam to get around banking regulations and capital reserve limitations. This is the exact same thing that caused the collapse in 1929. Banks leveraged far more than they could cover. Everything was fine as long as the market went up, but as soon as margin calls started, and capital vanished, the banks couldn't pay their debts.

Citibank and all the other majors have using this shell game now for the past 15 years, and Citi is the inventor of this facade. And now that they have infected this market with mortgages on overpriced homes with people who cannot pay, they want us, the taxpayer, to bail them out.

Citibanks needs to put these debt obligations back on their books, increase their capital and deleverage their risk.

[doodadem]

8. My Citibank Problem

When we refinanced our mortgage several months ago, we paid off our little Citibank visa. I then called them, and said, give me a good reason to keep this card. The last few months I had it, you raised the rate for no reason. They said, if you keep it, we will put it back to the old rate and keep it there. So we kept it.

In the past few months, they went back to their old tricks, like not crediting a payment on time so they can add late fees onto the next payment. They then used that as an excuse to TRIPLE the percentage rate. I said, no freakin' way. You're going to get the same payment at the same rate we agreed on. So now, they've snowballed all of this to take our payments from $60 a month, to now wanting over $700. Of course, now I don't have the lump sum of cash to pay it off again.

It's time these banks come to a reckoning for the power they've gained under this administration. These usary tactics are a large part of what's wrong with this economy.

[LSdemocrat]

9. One difference is that the US's FDIC guarantees are much stronger than the UK equivalent

FDIC guarantees 100% of the first 100K. While the UK only guarantees 100% of the first $4K and only 90% of up $63K

[opusprime]

13. The FDIC is a $54 Billion fund...

That would probably be enough to cover a Citibank insolvency, but would have $0 left if another bank went under.

Remember back in August that 4 major banks went to the FED and had capital limitations raised from 10% to 30%?

If we lose a large bank, the FDIC is empty. There will be a run on the banks, which will only make the matter worse.

If we lose a large bank, we're toast. The only way out will be to vaporize the dollar, which wipes out our economy for at least a generation.

The funds in the FDIC are a drop in the bucket, and will be extinguished before you can blink an eye. This is the risk of runaway capitalism.

[CK_John]

11. The problem is we think money is real. At that level money is a concept. The Fed

is now the proud owner of about 400Bil worthless mortgages in the last month. (i.e you are the owner). They are just resetting the odometer back to zero. Another success story of tinkle down economics.

[flashl]

16. Agreed. Faith based system. n/t

[robcon]

12. This is a phony story. Hysterical, but not in the funny way.

1. It's not that their REVENUE is down 57%, their NET PROFIT is down 57%. They had a bad quarter and only made half as much as they did in the 3Q last year. No biggie.

2. Off the Books is a classic way banks can sell off troubled assets. They did it during the Latin American country loan crisis of the 80's. Not a biggie.

"Not try to stir panic here, but if you have an account with Citibank that is above the FDIC insured amount, it might be a good time to consider moving it."

That's all you've done, opusprime. Why do you then say 'not to try to stir panic' when that appears to be the only purpose of your alarmist post. The mention of Northern Rock was a giveaway.

[opusprime]

15. re: This is a phony story

That's the great thing about opinions I guess, everybody gets to have one.

You're correct, it was their profits that were down 57%, I read revenue in a post from another board.

If you think having billions of $$ in debt in 'off the books', i.e., ENRON style financing, is 'no biggie' then ignore my 'alarm'.

I think this has the potential to seriously harm our economy, our security, and our future.

To each his own.

[lovuian]

14. Its in the same shape as Northern Rock

http://youtube.com/watch?v=dXtvbxEhv6g

Its looking like the Depression Days
with runs on banks

[halobeam]

17. question

if ppl run on banks.. wouldn't the dollar be worthless at the same time? If so, what good is taking your money out in US dollars if it has no value? How do people pay for anything if the dollar is as useful as toilet paper? Would the money exchange go to a different currency? Would gold be the only way to purchase something?

Oops.. I lied.. I should've written: questionS.