So this is the much vaunted kitchen sink? Citigroup took a $18.1 billion write-down in sub-prime related assets. But as they just discussed on the conference call, Citi still had $37.3 billion in direct and indirect subprime exposure at the end of the quarter. That's still a lot of risk on in asset classes that no-one can confidently value. Even Citigroup admits that it is just looking at the ABX and making intelligent guesses.
If we're following this correctly, Citi began the quarter with $55 billion in exposure to subprime and ended with $37 billion. A huge chunk of the $55 billion was in CDOs, which the company had valued around$42.9 billion. It sold $800 million (although it's not clear what the discount against book was) and wrote-down a whopping $14.3 billion. Our high level quant skills tell us this leaves Citi with $29.3 billion in CDO exposure. That's not quite the coming clean balance sheet the bulls were talking about yesterday.
What's worse, Citi's chief financial officer is stressing that there is no market against which to mark these asset backed CDOs. So these write downs are just mark-to-model. Educated guesses by the folks whose educated guesses got us into this mess in the first place.
You can already hear the people who got long on Citi yesterday running for the doors.
Update: Well, that call did not end pretty. There was a lot of talk about how the Citi team needed to impress investors by putting forth a new plan for the future and demonstrating they have a clear grasp of the risks faced by firm, particularly in the credit markets. The Q&A portion of the conference call pretty much did the opposite, with the chief financial officer having to admit many times that he either wouldn't comment or didn't know the answer to detailed questions about credit market exposure. Merrill's Guy Moskowski asked about what the original par value of the CDO portfolio. Crittenden said he didn't know. How about specifics on modeling versus market tests? Nope, just more hand-waving. Bess Levin favorite Meredith Whitney asks about CDO valuations and Crittenden declines to confirm her estimates. Ron Mandel asks about the ABX but Critter doesn't have the answer to that either. I guess we can give him Socratic credit for knowing what he doesn't know. And at least Pandit didn't end it by saying, "Let's get the fuck out of here."
Posted by , Jan 15, 2008 9:38AM
john you will be interested to know that crittenden is saying there was nothing observable to use to mark ABS CDO's
i know you were an early proponent of the fraud of not using the etfc portfolio so do you presume this triggers many SEC investigations?
Posted by Captain Grammar , Jan 15, 2008 9:47AM
Carney,
You clearly slept through your 4th grade lesson on homonyms. But as somebody who writes for a living (and has almost 50 loyal, educated readers), you really need to brush up.
Posted by anon4life , Jan 15, 2008 9:48AM
Unless Carney is a CDO-valuation expert (of the handful that apparently exist, Ben Bernanke need not apply), I have no idea what Carney's comment vis a vis the kitchen sink actually means. Does Carney know more about Citi's portfolio than Citi does? Do tell!
Posted by John Carney , Jan 15, 2008 9:54AM
Anon: My point is that there's still a lot of subprime risk in the portfolio. In other words, they haven't written down everything "including the kitchen sink." And, not, I'm not a CDO valuation expert but I'm also skeptical that such people even exist.
Captain: Email me the problems and I'll correct them. We do want to improve on this.
Posted by 9:38 , Jan 15, 2008 9:58AM
i know it is very in vogue to come down on carney but really what he says here reflects the opinions of a large percentage of market participants who looked at this number and said what, only a 30% write-down?
also, crittenden is being very clear on the call that more write-downs are possible. so this mark obviously comes somewhere between "kitchen sink" and "tip of the iceberg" and you dont need to be a CDO expert to see that
Posted by BrianVan , Jan 15, 2008 9:58AM
Carney doesn't know more than Citigroup, he's just way more willing to talk about what he DOES know than anyone over there is.
Posted by Anon , Jan 15, 2008 10:00AM
What's wrong with this sentence?
"You can already here the people who got long on Citi yesterday running for the doors."
Posted by , Jan 15, 2008 10:03AM
JC lost his paralegal and secretary when he left skadden behind .. john did you realize that the scrutiny on your typos would be even worse in the blogosphere than at a wall street law firm?
Posted by no. , Jan 15, 2008 10:08AM
does spellcheck = editing?
Posted by Fake Rupert Murdoch , Jan 15, 2008 10:08AM
If you Journal people don't stop editing Dealbreaker and start figuring out how to take a swipe at Hillary in the middle of a double hull tanker story, I'm going to hire that new guy Slate just hired from the Onion to replace you!!!
Posted by , Jan 15, 2008 10:09AM
Who cares. What's up with girl and 1-2?
Posted by http://hooked-on-phonics.com/hooked-on-phonics-category.cfm?category_ID=21&cat=On%20Sale&AFID=122&re , Jan 15, 2008 10:11AM
i usually dont care abt the errors, this one is pretty bad though...i'm HERE more for content and to HEAR *read* their commentary...i would suggest Hooked on Phonics.
also, JC, nice to see you got your ass out of bed early this morning and posted at 8:49
Posted by , Jan 15, 2008 10:13AM
@ Fake, Rupert Murdoch is a Hillary supporter. He is a great fundraiser for her.
Posted by edit this , Jan 15, 2008 10:13AM
@10:00 - decaf, bro.
Posted by HAM'05 , Jan 15, 2008 10:13AM
skadden? not kc chiefs?
also, re: typos - these guys are enthusiastically waiting to proofread your work: http://www.b2kcorp.com/
Posted by , Jan 15, 2008 10:18AM
You know what's funny, all it takes is some common sense to know this isn't over. I love the appeal to authority argument (Citi must know better, because they're muthaeffing citi!). Stop it and think, there is no mark to market, educated guesses are the only way right now b/c that is the only option given the current situation. Shock, the herd mentality comes out.
Posted by , Jan 15, 2008 10:21AM
i like this one angry investor on the citi call, he is pissed that $5 bn market cap is taken out of the stock today
Posted by John Carney , Jan 15, 2008 10:24AM
Hear, here!
Thanks guys.
Posted by , Jan 15, 2008 10:27AM
I'm lonely. Where's Bess?
Posted by just me , Jan 15, 2008 10:32AM
Funny about how the banks play this shell game with losses - almost any other corp would be in chap 11 or closing up shop with these size losses. I guess citi is TOO large to fail, beeyatches
Posted by Johnny Wadd Keynes , Jan 15, 2008 10:34AM
Remember, Citi can remain solvent longer than Wall Street pundits can remain irrational.
Posted by s75 , Jan 15, 2008 10:37AM
after that 2-hour marathon, here's what we know: 1 gary is being thoughtful about the future 2 vikram looks forward to talking to us more about the future in the future 3 dick is pissed his stock took a hit. time well spent i say
Posted by , Jan 15, 2008 10:43AM
Meredith asked about CDO valuations.... Asking a year ago would have been news. At this point, that's the question my grandmother is asking. Through this whole episode, Merrie girl has been an empty suit.
Posted by , Jan 15, 2008 10:52AM
so CDO valuations aren't relevant today?
dumb comment.
I heard Meredith on BTV this morning and she made some great points and offered her opinion based on some realistic assumptions.
That call was not the place to go looking for answers to relevant questions. See Carney's PS above.
Posted by , Jan 15, 2008 10:53AM
Asking a year ago would not have been news because the answer ("par") would have been useless
Posted by just me , Jan 15, 2008 10:58AM
I'd love to see Meredith's empty suit crumpled up on the floor in my bedroom
Posted by , Jan 15, 2008 11:03AM
really? she is kind of beastly
http://www.nytimes.com/2005/02/13/fashion/weddings/13whit.html?fta=y
Posted by , Jan 15, 2008 11:05AM
playa hating on meredith - she brought the noise and does what a bad-ass analyst is supposed to do - make the right call. She brought the noise and others are now feeling the pain.
Posted by , Jan 15, 2008 11:07AM
Great analyst, balls the size of Maria's.
However, too old and too porcine for my carnal tastes.
Posted by , Jan 15, 2008 11:14AM
@10:53 Don't be so literal. What I'm getting at of course is that the question that should have been asked by your hero Meredith (but wasnt) a year ago would have been something like whats your exposure; why are you comfortable with it.
Posted by , Jan 15, 2008 11:15AM
john its Guy Moszkowski not Gary Moskowitz, but I know you are coming from a good place
also just a plug here for the cfo. this may be my interpretation but it is not gary does not know, but these are questions that no company is revealing the answer to, they have been asked on every conference call for the past 6 months
Posted by , Jan 15, 2008 11:19AM
@11:14 my hero? i'm the one who said she is beastly. the question that should have been asked is what are the assumptions underlying these valuations but nobody would give you a straight answer on that anyway.
Posted by John Carney , Jan 15, 2008 11:21AM
Thanks, 11:15. Correcting that now.
And I think Critter is a smart guy. My point wasn't that he's particularly incompetent but that I'm not sure anyone in the c-suites on Wall Street has demonstrated particular competence at coming to grips with the proper value for these assets.
Posted by , Jan 15, 2008 11:27AM
fair enough, i'm just saying that if you look back gary is the only one who has consistently said, this is a guess, or at least since his first call with Rubin after they canned Prince
also ... M-O-S-Z-K-O-W-S-K-I if that helps
Posted by Poppy , Jan 15, 2008 11:47AM
any see this Poppy Harlow chic-reporter on CNN money?
Posted by , Jan 15, 2008 12:14PM
Can't support you on the Poppy call, je ne sais quoi.
How about Brittany Umar from street.com tv?
Posted by , Jan 15, 2008 12:36PM
The Critter is sooooo fired.
Not knowing the size of the exposure???
Are we playing chicken here?
Posted by , Jan 15, 2008 1:36PM
the reason they can't throw in the kitchen sink is because of how delicate the timing is in all of this. if they write off everything but something goes wrong with capital infusions, they're no longer a well-capitalized bank. they take a big write-down and hope that idiot analysts say "whew, the worst is over" and potential investors don't puke blood, get the fresh capital, *then* throw in the kitchen sink when they can absorb it.
Posted by just me , Jan 15, 2008 2:17PM
Maybe they need another 100 analysts to tell them the kitchen sink is worthless as well.
I still think Meredith would be good in bed.
Posted by , Jan 15, 2008 2:39PM
ugly chicks usually are
Posted by , Jan 15, 2008 3:14PM
she married a professional wrestler. qed.
Posted by , Jan 15, 2008 3:41PM
they can get all the ugly pussy they want i assume she has something else going for her and i am too lazy to read the articles about their engagement so i assume she takes it ass-to-mouth
Posted by just me , Jan 15, 2008 3:43PM
I'd like to see Meredith and Marie mud wrestle - can DB arrange that?