GM considering Bankruptcy Protection//Citi says a small capital injection should do the trick...

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scbt's picture
scbt
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GM considering Bankruptcy Protection//Citi says a small capital injection should do the trick...

The cycle continues,

1)  public is outraged at requests/demands for funding. 

2)  Media terrifies the public,

3)  Corporations get what they want and more. 

4.28T and counting....

 

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: GM considering Bankruptcy Protection//Citi says a small ...

Didn't I read somewhere that if the car companies DID get their $25B they will have burnt it by April 2009, and that we would all be the poorer for it and they would be exactly where they are right now?

 

Citigroup May End Up With Government Rescue After Stock Skids

By Christine Harper and Bradley Keoun

Nov. 22 (Bloomberg) -- The U.S. government may step in to rescue Citigroup Inc. after a crisis in confidence erased half the bank’s stock-market value in three days, according to investors and analysts.

Citigroup’s $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the U.S. government this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“Citi is in the category of ‘too big to fail,’” said Michael Holland,
chairman and founder of Holland & Co. in New York, which oversees
$4 billion. “There is a commitment from this administration and the
next to do what it takes to save Citi.”

One option is for the Federal Reserve and U.S. Treasury to create a
special vehicle to purchase bad assets from Citi. The Fed has already
erected several such funds, such as the Commercial Paper Funding
Facility, to provide liquidity to the financial system. Typically, the
Treasury would provide some first-loss equity or insurance fee, such as
$50 billion provided to the CPFF, to protect the central bank and give
the fiscal authority a stake.

The arrangement allows the Fed to leverage the money provided by the
Treasury with loans, enabling the purchase of assets worth a multiple
of the money. Funding the purchases with loans makes them less onerous
to the U.S. budget.

Working Relationship

“That is the working relationship they have settled into with the
Fed providing $1 trillion of the funding and the Treasury providing the
equity tranche,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

While Citigroup executives say the company has adequate capital and
liquidity to ride out the crisis, its tumbling share price may shake
the confidence of creditors, clients and rating companies. A similar
scenario played out at Lehman, when Chief Executive Officer Richard Fuld declared the firm was “on the right track” five days before the firm went bankrupt.

“The market may be implying some sort of regulatory intervention,” Jason Goldberg,
a former Lehman analyst who now works at Barclays Capital in New York,
wrote in a note to clients yesterday. “In situations where the
government has stepped in, the equity holders have not fared well.”

Pandit’s Conference Call

Citigroup CEO Vikram Pandit told employees yesterday that he doesn’t plan to break up the company, aiming to reassure workers as the stock
resumed its skid. Citigroup shares dropped 94 cents, or 20 percent, to
$3.77 at 4:08 p.m. in New York, giving the company a market value of
about $21 billion. The stock pared its loss after the close of official
trading, fetching $4.07 as of 4:35 p.m.

Pandit and Chief Financial Officer Gary Crittenden,
speaking on a worldwide conference call yesterday, also said they don’t
expect to sell the Smith Barney brokerage unit, according to two people
who listened to the call and declined to be identified because it
wasn’t open to the public.

The call came as Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons,
prepared to meet yesterday at the bank’s headquarters in New York, said
a person familiar with the company’s plans who declined to be
identified because the deliberations are private. Bischoff, interviewed
at a conference in Portugal yesterday, declined to comment on any
potential changes to the board.

“Providing stability” and “securing the future” are the themes of a
new print advertisement that Citigroup plans to start running tomorrow
in major markets in the U.S. and overseas. “Now, more than ever, you
can feel confident that Citi never sleeps,” the ad reads.

No. 5 By Value

Once the biggest U.S. bank, with a market value of $274 billion at the end of 2006, Citigroup has now slipped to No. 5 behind Minneapolis-based
U.S. Bancorp. A plan by 51-year-old Pandit this week to cut costs by
shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal
didn’t assuage shareholders’ concern that bad loans and securities
writedowns may extend a yearlong run of net losses totaling $20
billion.

“To be consistent with the last few government interventions, I don’t think Citigroup’s going to be allowed to fail,” said William Fitzpatrick,
an analyst at Optique Capital Management Inc. in Milwaukee, which
oversees about $1 billion and doesn’t own Citigroup shares. “This
company’s too intertwined with the rest of the financial system to
allow any further deterioration.”

Citigroup spokesman Michael Hanretta declined to comment. On the call yesterday with employees, Pandit said the company’s capital and liquidity are strong.

TARP Funds

Including a $25 billion capital injection from the U.S. Treasury
under the $700 billion Troubled Asset Relief Program, the company has
at least $50 billion of capital above the amount required by regulators
to qualify as “well capitalized.” Capital is the cushion banks must
keep to absorb losses and protect depositors.

Deutsche Bank AG analyst Mike Mayo
wrote in a report yesterday that the bank’s $25 billion of reserves,
when combined with other resources, “should be enough to cover
estimated cumulative losses of $50 billion on loans.’” Mayo rates the
stock “hold” and has a $9 price target.

“With Citi being as big as they are, the government will make a
special case and step in and find another reason to dispose of more
TARP funds,” said Matt McCormick,
a portfolio manager and banking analyst at Bahl & Gaynor Investment
Counsel in Cincinnati, which manages about $2.9 billion and doesn’t own
Citigroup stock or debt.

Deposits Are Safe

Pandit was appointed last December to succeed Charles O. “Chuck” Prince,
who was ousted as mortgage-bond writedowns saddled the bank with a
record fourth-quarter loss of almost $10 billion. Prince was the
handpicked successor of former Chairman and CEO Sanford “Sandy” Weill, who built the company through a series of acquisitions over 17 years before stepping down in 2003.

Bischoff, 67, was Citigroup’s top executive in Europe until he was named chairman when Pandit became CEO.

Bank employees have been telling customers their deposits are safe,
and so far corporate clients haven’t moved their money elsewhere, said
three people familiar with the matter who declined to be identified
because they weren’t authorized to speak publicly about the accounts.

Crittenden, 50, has told colleagues it would be unwise to make hasty
decisions to dispose of good businesses to satisfy investor demands for
a show of action, one person familiar with the matter said.

To contact the reporters on this story: Bradley Keoun in New York at [email protected]; Christine Harper in New York at [email protected].

tom.'s picture
tom.
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Posts: 345
Should we bail out GM?

I will answer with the same post I used at seeking alpha this morning.

I think of "Who killed the electric car" when GM caved to big oil. They had it all and crushed and shredded the world lead in energy efficient automobiles, pissing away their own future. They sneered and wrote off the love that people developed for the EV1. They deserve now to be written off by the people they now crawl to on their undeserving knees.

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Should we bail out GM?

I 've seen "Who killed the electric car".

GM owned all those cars, and they were reaching that stage of their lives when they would have needed repairs worth more than the cars were worth.  Pure and simple.

When the battery packs of the early Priuses pack in, the replacement cost of the battery pack is greater than the worth of the car.  As a result, most old Priuses are trashed, and even sometimes just left on the side of the road where they died. 

I was told this story by an owner of the first Prius model, an American with whom I converse on a Peak Oil and Energy Resources list.

In a wasteful world dictated to by markets, a lot of waste like this happens.  We recently wrecked a perfectly good car because we could no longer buy parts for it.  The dealers said to me the car was too old to keep on the road!  I let him know in no uncertain terms what I thought of his company...

tom.'s picture
tom.
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Posts: 345
Re: Should we bail out GM?
Damnthematrix wrote:

GM owned all those cars, and they were reaching that stage of their lives when they would have needed repairs worth more than the cars were worth.  Pure and simple.

They never used that as their excuse for mothballing the EV1 .. they used "no demand" and tried to prove it by surveying everyone one of the thousand plus on the waiting list, telling them only the negative aspects of the car, and getting them to renege on the waiting list. What kind of car company promotes demand that way?

 

Who killed the electric car ... online movie, 1 hour 32 minutes (french subtitles)

 

EDIT: for some reason that link takes you to the 2 minute version, but the 92 min version is listed on the same page.

switters's picture
switters
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Posts: 744
Re: GM considering Bankruptcy Protection//Citi says a small ...

I particularly like how Rep. Brad Sherman from California said to the Big Three execs:

"You guys all flew here in your private jets?  Raise your hand if you're planning on selling your jet on the spot and flying home on a commercial airline?" 

Of course no one raised their hands.  Sherman went on:

"Let the record show that no one raised their hand."

Many other congressional reps mentioned something similar.  One asked:

"Couldn't you have at least 'downgraded' to First Class?"

Others pointed out the disturbing symbolism of that excess.

At least some folks in Congress are paying attention.

krogoth's picture
krogoth
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Posts: 576
A great day in Congress
switters wrote:

I particularly like how Rep. Brad Sherman from California said to the Big Three execs:

"You guys all flew here in your private jets?  Raise your hand if you're planning on selling your jet on the spot and flying home on a commercial airline?" 

Of course no one raised their hands.  Sherman went on:

"Let the record show that no one raised their hand."

Many other congressional reps mentioned something similar.  One asked:

"Couldn't you have at least 'downgraded' to First Class?"

Others pointed out the disturbing symbolism of that excess.

At least some folks in Congress are paying attention.

 

Only problem is, we have this kind of grilling on 25bil, and an open book for Paulson to do what he wants with 700 bil and no existing oversight. Strange. Paulson must have a lot of dirt on somebody or a lot of people to wield so much unchecked power. The game continues.

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