All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.
[...]
The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.
This wouldn’t be the first time we’ve pointed out that financial Newspeak (the purge of all meaning from some phrases and words and the concentration of it in others) seems to be all the rage with the kids today. I realize that, conflicted though it looks, one could interpret “expected to be no cost” and “Citigroup Inc. will absorb up to $42 billion of losses….” as something other than mutually exclusive. That catch-all word “expected” makes the world your oyster as a public relations professional. For example:
Lehman Deal Expected This Weekend [Wall Street Journal]
Lehman Expected To Follow Merrill’s Route [Reuters]
Sales Of Some Lehman Units Expected Soon [Reuters]
Lehman’s Chairman, Dick Fuld, Is Expected To Attend The Gala Dinner [Unknown]
Even as I type this, the usual CNBC wonks are salivating over that tasty FDIC Chairwoman, Sheila C. Bair. Apparently, she get’s “three thumbs up.” I guess the insight that FDIC insurance premiums might have to be bumped up after weeks and weeks of massive losses qualifies one as a brilliant master of all things finance. (At least it does in Newspeak).
All Sheila needs is a slight improvement, elevating her to the “heckofajob” level and she’ll be unceremoniously dismissed fired a week later.
Citigroup Inc. to Acquire Banking Operations of Wachovia [FDIC.gov]
Brilliant EP.
“market currently up because bailout deal EXPECTED to pass soon”
dont vote obama cuz he be black.
What the FDIC did with WB can only be done (open bank assistance) with presidential authority (per the FDIC Act) – so the Citi/WB deal was approved at the highest levels and therefore it would’ve been a failure for WB had it not gotten this blessing…Dow 5000…
too long, lowering expectations
Gov to the rescue… http://www.dilbert.com/fast/2002-07-24/
Kerry K. at WM was brilliant to reject JPM offer of $8 in the spring…that worked out so well for shareholders. Asshat.
He should be removed from banking – forever.
What a picture!!!
312B-42B = 270B.
FDIC reserve, optimistically: 50B.
50B/270B = 18.5%
20% of that loan portfolio goes bad and FDIC is broke. Printing presses, engage.
@8 must be a retail broker in VA.
20% of $312 B goes to $0 = $62.4B
Shittycovia portion $42B
Gubmint eats $38 B
@9…correct but i also do not believe the transaction was structured where the DIF is where the money came/goes/went to, should a loss happen.
@8 i am a hedge fund manager in bermuda what is a printing press
9: Fair cop. Badly phrased. Should’ve been “20% of FDIC’s total exposure goes bad and they are broke.”
“Let’s do a single deal which has a 20% chance of ruining us” is the sort of thing those dumb fucks on Main Street get really, really upset about. Just sayin’.
Damn, off my game today. THAT should’ve said, “‘Let’s do a single deal that has a 20% chance of ruining us to bail out Wachovia instead of just paying off the deposits like we’re supposed to’ is the sort of thing those dumb fucks on Main Street get really, really upset about.”
@13…huh? why pay off the deposits from via the FDIC when there was no need to pose that kind of risk?
Here’s the problem: they backed the loans so they didn’t have to close the bank. If they’d closed and sold the bank, they’d have been on the hook for insured deposits less proceeds of sale. Since they didn’t, they’re not out anything up front (good) but they’re potentially on the hook to C for multiples of their entire reserve (bad.)
Unless they can prove that closing the bank would have wiped them out ANYWAY, IMO this was an unacceptable risk to assume on behalf of C. If it all goes south and we end up printing a couple hundred billion $ to indemnify C, the heads of FDIC will be taken out behind the chemical sheds and shot.
Whether the bailout passes or not is besides the point. These are tough times for our banking institutions. The average investor should start taking steps to protect their money. This basically comes down to either taking your money out of the market and cutting back on discretionary spending or diversifying by investing some overseas. I personally do the later using offshore bank accounts and they have helped me with diversification and asset protection. If you want to read more on why offshore investing is smarter, feel free to visit my website.
Best,
Frank Miller
http://www.theoffshorebankaccount.com