Mortgage Giant Freddie Mac Considers Major Stock Sale (WSJ)
So say people familiar with the matter... evidently the mortgage giant (sorry, troubled mortgage giant) wants to raise up to $10 billion in a stock sale. The idea is that maybe this would help avoid a government bailout. Instead, it would be the government getting bailed out, by not having to bite the bullet on this one. Certainly if they can find a buyer, that'd be great. They'll probably end up paying through the nose for that cash. Meanwhile, to get a sense of how big this is: Freddie's market cap is just a bit over $5 billion.
Citi Reports Second Quarter Net Loss of $2.2 Billion, Loss Per Share of $0.49, from Continuing Operations
Great news: Citi didn't lose $2.86 billion as analysts had forecast. They only lost like $2.2 billion or $2.5 billion, depending on how you measure it. Evidently the stock is already ticking up a few points. The company was helped by some 11,000 layoffs in the first half of the year. 6,000 came in the first half of the ear.
Why Silicon Valley Should Be Worried (GigaOM)
As if we didn't have enough to worry about over here... it looks like the punk economy may have completed its cross-country road trip, and is now taking in the sites at the Golden Gate bridge, messing up the whole tech economy out there too. Lots of bad news all of the sudden pouring in. Google was weak last night. Microsoft was pretty sour, especially in online ads. Other smaller firms have warned. There's also been an increase in the number of companies diving headfirst into the deadpool, cause they weren't able to raise their latest round. It's kinda getting sucky out there.
As Price of Grain Rises, Catfish Farms Dry Up (NYT)
We'll cap of your Friday Opening Bell with the most depressing story we've read all week. Evidently this economy is terrible for catfish farmers, many of which are going under due to high corn and soy prices. Honestly, that's a little weird. Fish eating corn and soy? Fish? Really? Apparently so. Also, evidently margins at catfish farms are pretty thin, so there's no room for some major cost spike. Old catfishhands are even losing their jobs. Read about it. It's grim.
Posted by guest , Jul 18, 2008 7:41AM
Why intervening in markets almost inevitably ends badly: http://tinyurl.com/6lk59l
Posted by chad , Jul 18, 2008 8:26AM
in case anyone was wondering, the Dark Knight was absolutely ridiculous.
Posted by merkin capital partners , Jul 18, 2008 8:31AM
did anyone hear the marine max guy define luxury homes as $50mm and up?
Posted by guest , Jul 18, 2008 8:33AM
First half of the ear?
Posted by guest , Jul 18, 2008 8:55AM
van gogh securities can I help you?
Posted by guest , Jul 18, 2008 9:09AM
It is funny - Citi losses ONLY $ 2.2 billion and that is GOOD? That is good? Google misses by 1 cent and it is down by 6%. So google made money and it is down6% and Citi has had 4 quarters of losing money and it is up 6%?
Posted by guest , Jul 18, 2008 9:21AM
9:09,
I think you forget that Citi has existing for decades and is not considered to be a 'growth' story. Which is why it trades in single digit P/Es - losing $2.2 B does not really dramatically change the long run cash-flows from where they are already assumed to be.
Google on the other hand is a 'growth' company where the business model - and the cash flows - is yet to be set in stone. It also trades at P/Es of 25-30, where missing earning dramatically alters future cash flow projections and hence the stock price.
Posted by StMarc , Jul 18, 2008 9:25AM
It's a pity about those catfish farms, because captive fish farms are one of the greenest ways to create protein - it uses very little land, catfish are incredibly hardy and don't need all of the care that other livestock do, and they grow really fast. Unlike wild fishing, you don't have to worry about pollution, overfishing, or high-school dropouts making eighty grand a year needing million-dollar rescues from the Coast Guard.
When regular non-Japanese beef is fifteen dollars the pound, I'm thinking fish farms will make a comeback.
M
Posted by guest , Jul 18, 2008 9:27AM
@ 8:55 - surprisingly funny
Headcount reduced by approximately 6,000 in the second quarter and approximately 11,000 in the first half of 2008.
Posted by Investorcluzo , Jul 18, 2008 9:29AM
@9:09 - it's all about expectations. google doesn't give guidance, so the analysts are all out there clawing around in the dark. so, to @9:21's point, if you have a p/e ratio of 36+ you have to keep up the growth or expect the multiple to decline in tandum (if not faster)...
Posted by michange , Jul 18, 2008 9:31AM
+6 % on C's marketcap doesn't really have the same meaning as -6% on Googles'...
Posted by michange , Jul 18, 2008 9:31AM
Qui bene amat bene castigat
Posted by guest , Jul 18, 2008 9:34AM
@ 9:09
I understand and agree with what you are saying about Google.
But Citi - long term cash flows, great. But what about any sign that they will be profitable? Seriously look at the way the made money in the last 5 years. Most of the business lines that made them huge money in the last 5 years no longer exisit. So they will likely lose money for at least the next 2 quarters and then what - how do they make money??
Posted by guest , Jul 18, 2008 9:36AM
Citi stock is up? Great, another reason for their managers to "work from home" today!
Posted by StMarc , Jul 18, 2008 9:36AM
BTW, while it's true that FRE's market cap is 5.4B or thereabouts and therefore a 10B offer seems ambitious, remember that within the last twelve months their stock has experienced an 8x drop. It sounds a LITTLE less silly if you think about a 45B cap and a 10B offer. Not exactly *normal,* but not a 200% stock water, either.
M
Posted by guest , Jul 18, 2008 9:45AM
Carfish, whether wild or farmed, still taste like mud.
Posted by guest , Jul 18, 2008 9:46AM
Catfish, whether wild or farmed, still taste like mud.
Posted by guest , Jul 18, 2008 9:50AM
@ M
But going forward do you think the business that FRE is likely to get better or worse? Tweleve monthes ago Citi was a $70 stock and BSC exisited.
Negative equity in Alt-a and prime mortgages are only going to increse in the next 12 months. What is a 200% dilution today is more likely to be 300% 3 months from now.
Posted by Investorcluzo , Jul 18, 2008 9:59AM
@9:50 - the question is: who's going to buy the paper? the problem is: the government doesn't want to look like it's taking the company over (care of you, me and the rest of u.s. taxpayers) not to mention, a pfd deal is too expensive. unfortunately, you can't do a good bank/bad bank deal. if you own the stock today, you don't care if you get diluted becuase the alternative is getting zero...
Posted by guest , Jul 18, 2008 9:59AM
I love the logic that the banks high margin business is gone ...totally gone! so now they are screwed going forward.
"HOW ARE THEY GOING TO MAKE MONEY NOW THAT THE GAME HAS CHANGED??"
what a bunch of crap.
What do you think they did 5 years ago when none of those lines of business existed? They invented them and made a $hit load of money. And they will do it again. They will find a way to rename, repackage, circumvent, and loophole themselves into new businesses.
Posted by guest , Jul 18, 2008 10:05AM
For some reason as I can think about is lil'Vik lying on his back having his lil'belly tickled while purring softly.
Posted by guest , Jul 18, 2008 10:11AM
Look at all these slacking, bored bankers (in the proverbial sense of the word) on this hot Friday morning... Especially you Cluzo - stop being a tree hugger.
Posted by guest , Jul 18, 2008 10:14AM
@ 10:11 - right on. Speaking of slacking, the DB bloggin team must've had a rough night considering it's already mid-morning and not even one post.
Posted by guest , Jul 18, 2008 10:14AM
Who is blind banker?
I bet @girl is really a guy.
Posted by StMarc , Jul 18, 2008 10:22AM
9:50 - I didn't say *I* would buy it. :)
I was more saying that the people setting up the offer may still be living in the relatively recent past, where $10B was chump change and not twice their entire market cap. That would only have been a 100% dilution (I know that's vastly oversimplifying, but as is often the case when I vastly oversimplify, I don't care) less than a month ago and a 50% dilution not much further back than that.
M
Posted by guest , Jul 18, 2008 10:23AM
Hey Db team, make with the posting!!! I know your in the office, hop to it.
Posted by Anal_yst , Jul 18, 2008 11:18AM
@ 10:14
I can attest, girl is not a guy. Thanks for playing though.
Posted by guest , Jul 18, 2008 11:23AM
Fish of all kinds is my favorite "protein" food. Cat fish however is gross.
Posted by guest , Jul 18, 2008 11:31AM
9:34, Citi can go back to being a normal commercial bank and make profits just like commercial banks have for the last 100 years.
Posted by guest , Jul 18, 2008 12:26PM
@ 11:31am
Perhaps, but like many a prom queen have found out, once you gain 10 years, 100 pounds and an alcohal habit it is a lot harder to revert to your former self.
Inflation is at a 20 year high (and only going higher) interest rates are on their way to 6%-8%, and obama is going to be president.
Citi has massive off balance sheet liabilities (by some estimates $1 trillion). It continues to lose money. And it would seem that its plan going forward is to mark time until.....
Over under until Citi get 4 sucessive quarters of profit? 3 years?
Posted by guest , Jul 18, 2008 1:28PM
Good news all!
Freddie only going to dilute 100%. Issue only going to be for $5 billion.
Definately well capitalized now.....or until next friday anywy.
Posted by Anal_yst , Jul 18, 2008 1:48PM
@ 12:26
Whats your source for this magical $1tn # for Citi's off-balance sheet liabilities?
Posted by guest , Jul 18, 2008 2:08PM
12:26, going back to being staid old commercial bank from wanna be i-bank is more like suburban housewife going back to being so instead of trying to become a supermodel.
And all of us would agree, that is an easier and more natural transition to make.
Posted by guest , Jul 18, 2008 2:10PM
@ Anal_yst
The clowns are smiling about the dark profits in assets parked off balance sheet:
At an investor presentation in May, Citigroup Inc. Chief Executive Officer Vikram Pandit said shrinking the bank’s $2.2 trillion balance sheet, the biggest in the U.S., was a cornerstone of his turnaround plan.
Nowhere mentioned in the accompanying 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books: trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds.
Now, as Citigroup prepares to announce second-quarter results July 18, those off-balance-sheet assets, used by U.S. banks to expand lending without tying up capital, are casting a shadow over earnings. Since last September, at least $100 billion of assets have flooded back onto Citigroup’s balance sheet, accompanied by more than $7 billion of losses.
$1.1T with a t,te, teeee hiding in the dark. That doesn’t put a shadow over earnings; it blackens them out completely.
Citigroup has nothing but negative earnings to begin with, and the dark profits associated with nefarious credit-related instruments are mostly worthless in the bright light of day. So, what it’s really saying is that the bank’s balance sheet is closer to $3.3T, with a big T:
Citigroup has had to bail out at least nine investment funds in the past year, including seven structured investment vehicles, or SIVs, whose funding withered. The bank had to assume $45 billion of securities from those SIVs, which are now included in the $400 billion of on-balance-sheet assets Pandit says he’s trying to unload in the next three years.
See http://bankimplode.com
Anal_yst, i assumed that if Citi actually had to absorb these $1.1 trillion worth of black "assets" onto their balance sheet and then sell them they would be worth about $100 billion. I would love to be proved wrong but looking at something like the ABX index makes me think that most of this crap on a mark to market basis is worth about 10% of it's orginal value. But again please prove me wrong. Take the other side of this.
Posted by guest , Jul 18, 2008 2:42PM
@ 2:08
Problem is the subarban house wife became a super model for a couple of years. With all the bad habits that come with being a super model. If the supermodel is ever able to transition back to suburban house wife it will take at least 5 years. And chances are she will be a much less marketable suburban housewife than she orginally was. Thus worth a great deal less than if she had stayed in her orginal role.
Posted by guest , Jul 18, 2008 3:31PM
Ha ha ha, 2:10 is most probably a fresh intern, scratch that - 2:20 is probably some freshman who is taking econ 101 and already thinks he is a baller :)
Do you know what off-balance sheet assets mean? How they are structured? That Citi would have no liability on the deals on which it holds no resids?
So you read something on WSJ and bloom about '1.5T Citi assets' and decided to add on 'shadow','dark','black' and sound impressive.
Citi's off-BS has mortgage securities off all ratings, commercials and other asset classes as well as protection written on CDOs etc.
So you want to mark them all at 10% because 'the ABX index trades at 10%'??
Btw, is the ABX index something like the S&P? Are there multiple indices? Do they all trade at '10%'?
Here's an idea. Its fri, go out and drink with a few sorority chicks, try to impress them with those terms you know shit about and see if you score any. I would think not - no semi-hot chicks puts out to some stupid geek who trolls websites for financial terms and thinks he is cool because he can name a few (without understanding them).
Posted by guest , Jul 18, 2008 3:31PM
Its easy to go from fatty back to prom queen when you have sov weath funds basically performing lipo and plastic surgery.
Its not like citi actually has to get on a "treadmill" and earn all that capital back...
Posted by guest , Jul 18, 2008 3:36PM
" But again please prove me wrong. Take the other side of this. "
Hear hear. Moron knows shit and challenges people to take the other side. This is hillarious.
Posted by guest , Jul 18, 2008 3:43PM
Hey 3:13 - If you don't know what the ABX index is maybe don't laugh so hard.
Makes you look like the Moron you are laughing at.
Posted by Anal_yst , Jul 18, 2008 3:45PM
I'd give it a shot, but not being an expert in off-balance sheet financing, I'd prefer someone slightly more in-the-know addressed 2:10, although it doesn't seem to be much of a challenge...
Posted by guest , Jul 18, 2008 4:10PM
3:13, looks like you are 2:10.. and also looks like it is not just structured finance that you know less of... you are also ignorant about something called a 'rhetorical question'.
You still think that the ABX is one index which is currently trading at 10%? And then you have the temerity of calling others morons.
You may not find someone at your school who can answer this but why dont you at least do a google search and figure out what the ABX indices (yes INDICES not index) are? They hold meaning beyond the scary things they are potrayed to be un the news (which is your only source of knowledge on them, as far as I can see).
And you may be shocked/pleased/surprised/dumbfounded to know that there are also ABX indices which trade upwards of 80 cents to the dollar.
Or you could just forget all this finance mumbo-jumbo and go out drinking.
Posted by guest , Jul 18, 2008 4:33PM
3 out of 24 indices trade at more than 80 cents on the dollar.
more -(4/24) trade at less than 5 cents on the dollar.
9/24 trade at between 5 and 10 cents on the dollar.
2/24 trade between 15 to 20 cents on the dollar.
6/24 trade at between 40 to 65 cents.
So by my count 13 out of the 24 indices trade at less than 10 cents on the dollar.
Look at the charts on all the other indices - where does it look like they are going?
Posted by guest , Jul 18, 2008 4:33PM
3 out of 24 indices trade at more than 80 cents on the dollar.
more -(4/24) trade at less than 5 cents on the dollar.
9/24 trade at between 5 and 10 cents on the dollar.
2/24 trade between 15 to 20 cents on the dollar.
6/24 trade at between 40 to 65 cents.
So by my count 13 out of the 24 indices trade at less than 10 cents on the dollar.
Look at the charts on all the other indices - where does it look like they are going?
Posted by guest , Jul 18, 2008 4:36PM
Sigh, as the old adage goes - a little knowledge is a dangerous thing.