Should Tim Geithner's Wall Street consigliere make us queasy?
The issue of the day is obviously CIT. It's hard to sort out the real news from clever PR/planted stories in this situation, but it looks like the FDIC is coming out strongly against being involved in a rescue package. Given Sheila Bair's successful political positioning and strong popular appeal, it's hard to see how--once dug in--the FDIC can be moved. The lobbying frenzy has concentrated on CIT's role in financing small and medium-sized business; "the recession will be deeper if CIT fails" is the refrain. This is a weak argument--it would be straightforward to refinance this part of CIT's b
The Wall Street Journal has a noble if not quite jaw-dropping piece today on the personal use of corporate jets by executives (and former executives) at bailed-out banks. The gist: A lot of execs continued to indulge in this perk long after their companies went on the government dole. To wit: At Citigroup, two days after the bank canceled the jet order Mr. Obama criticized, former Chief Executive Sanford Weill boarded a Citigroup-owned plane for a flight to a small airport at Saranac Lake in New York state's woodsy Adirondack region.
From the Journal's piece about tension between Citi and the FDIC, which wants to can CEO Vikram Pandit: The discord between Citigroup and the FDIC dates to last fall. In September, Citigroup agreed to buy faltering Wachovia Corp. in a government-arranged marriage. Days later, however, Wells Fargo & Co. swept in with a higher offer for Wachovia. Citigroup officials felt blindsided and faulted Ms. Bair [the FDIC chairman] for endorsing the Wells Fargo bid over their own. On a 2 a.m. conference call at that time, the usually mild-mannered Mr.
Okay, so thanks to a final, heroic burst of leaks, we have a pretty good idea of who stands where, stress-test wise: Bank of America, Wells Fargo, and GMAC all need $10-billion-plus increases in common equity, which is just ordinary stock ($34 billion in BofA's case). Citigroup needs another $5 billion--this on top of up to $45 billion in bailout money it's already converting from preferred shares to equity.
THERE'S A TENDENCY, in the endless discussions about the economic crisis, to think of the entire financial industry as a single, ultra-powerful actor. Big commercial banks, nimble hedge funds, even the odd insurance company all get lumped together under the heading “Wall Street,” with its sinister, Death-Star connotations.
Noam Scheiber is right about the Citigroup numbers, and investors have seen it right from the start. Puffed up as a big quarterly gain, the report resulted in a sharp down on the Dow, S&P and the NASDAQ. Then came the Bank of America earnings disclosures, even bigger than at Citigroup. And the stock indices fell further. At 2 p.m. as I write, each of the markers is heading south, down about 4%, not a small decline.Investors can now read much-hyped returns for the losses they disguise. The skepticism over accounting hi-jinx is by now endemic.
You don't have to read very far into the coverage of the recent bank earnings announcements to see that there's a lot of dodginess involved. First Goldman reported a $1.8 billion profit, which was great until we learned that they conveniently left December out of their quarterly numbers--December being the date of some enormous losses. Now, Citigroup is touting its $1.6 billion profit--except that, once you read a little further, you notice that what drove it was a $2.7 billion one-off gain that's entirely an artifact of accounting alchemy.
I've been using a Citibank credit card since I graduated from high school (something that becomes obvious if you glance at the card, which features my senior prom photo--they don't ask for a new picture when they issue me a new card). In recent years, I've noticed that Citi has become extremely vigilant about potential theft. For example, last year, they noticed that some London-based outfit had charged my card exactly one cent. They promptly closed my account and issued me a new one, explaining that fraudsters sometimes do this to see if anyone's minding the store.