• 25 Nov 2008 at 1:29 PM

Insider Rumors: Citi Terms In Detail

By

We cherish our readers. They send us tasty treats on a regular basis. Like the purported Citigroup termsheet:
10551985.pdf
Says one loyal reader:

While I have not seen any details around the $309bn in assets being guaranteed as part of the C transaction, I would hope that these are AAA or at least AA rated MBS. As the Fed has been lending against these types of assets under the TSLF and PDCF since at least mid September, it is a bit perplexing how the transaction makes sense. The only way I can get my arms around it is that the Fed was no longer comfortable with its advance rates against the collateral and required C to pony up what is essentially a margin call. Help me out with the logic if I am missing something but:

  • C has $309bn in MBS assets. The Fed is likely advancing ~97% on these assets right now under TSLF and/or PDCF.
  • Fed has reduced this advance rate from 97% to 90%, which leaves a $20bn hole (7% * $309bn)
  • Fed takes $20bn in 8% preferred securities and warrants for $20bn in cash that can be used to repay the Fed to an advance rate it is comfortable with.
  • Additionally, C is forced to give $7bn in additional preferred to continue to receive a non-recourse advance on these assets.
  • Finally, C is charged a more punitive rate of interest on the financing of these assets at OIS + 300, which is likely 200-250 bps higher than under TSLF or PDCF, with the principal being non-recourse and the interest recourse.

Effectively, the fed went from being long 3-100 risk on $309bn of assets to being long $27bn in C preferred shares and 10-100 risk on the $309bn with a 10% risk share with C and a higher interest rate. I still don’t understand how this is a good deal for C or any of the other banks other than it says that the Fed is serious about not letting the whole system fail (which we knew already).

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Comments (102)

Older Comments
  1. 1
    Posted by guest | November 25, 2008 at 1:30 PM

    First not to want my tax dollars to fund these losers

  2. 2
    Posted by Clown Capital | November 25, 2008 at 1:35 PM

    Second to eat it up, then beat it up…

  3. 3
    Posted by guest | November 25, 2008 at 1:36 PM

    Term sheet is available on the fed res website as well….

  4. 4
    Posted by guest | November 25, 2008 at 1:37 PM

    Are you kdding EP? That term sheet was available on WSJ.com yesterday…get with the frickin program…
    Maybe you should just stick to your absolutely ridicuously long pieces of BS…

  5. 5
    Posted by guest | November 25, 2008 at 1:38 PM

    can someone translate “the fed went from being long 3-100 risk on $309bn of assets to being long $27bn in C preferred shares and 10-100 risk on the $309bn with a 10% risk share with C and a higher interest rate” for those on the equity side please?

  6. 6
    Posted by guest | November 25, 2008 at 1:38 PM

    http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081123a1.pdf

  7. 7
    Posted by guest | November 25, 2008 at 1:38 PM

    http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081123a1.pdf

  8. 8
    Posted by guest | November 25, 2008 at 1:42 PM

    Hating on C is like hating on America. Who hates on America? EP.

  9. 9
    Posted by guest | November 25, 2008 at 1:42 PM

    god damn it people this isn’t news – who cares how much the govt gives to city or the otherway round, who’s counting anyway? Today SEVEN PE rockstars from Carlyle got FIRED! Let us all pray, the apocalypse must be near… is that a wideclops coming my direction or are it the four horsemen…

  10. 10
    Posted by guest | November 25, 2008 at 1:45 PM

    It has been confirmed – Obama did in fact call W a “Jive Turkey”

  11. 11
    Posted by ep | November 25, 2008 at 1:47 PM

    “Posted by guest, Nov 25, 2008 1:37PM
    Are you kdding EP? That term sheet was available on WSJ.com yesterday…get with the frickin program…
    Maybe you should just stick to your absolutely ridicuously long pieces of BS…”
    I think you need your sarcasm indicator adjusted.

  12. 12
    Posted by guest | November 25, 2008 at 2:01 PM

    #4 you suck donkeycock. like it here or fuck off, preferably the last.

  13. 13
    Posted by MoneyBoss | November 25, 2008 at 2:10 PM

    So…
    A) The Fed wanted to do this at a punitive rate to discourage everyone else making a phone call
    B) The Fed doesn’t trust C
    C) The Fed hates having to pay in Rupees and charged extra for the conversion rate

  14. 14
    Posted by guest | November 25, 2008 at 2:12 PM

    As a policy maker you can’t just keep on talking smack and doing nothing. This only works with slight downturns. In crises you eventually have to back up your words with real action. The more you just talk the more likely the system will collapse. This is why the Fed did what they did. The Fed’s latest actions of course reveal how bad the balance sheet problem is. I am sure many of the big banks have Citi’s problems. Look for more quasi nationalization of the banking system.

  15. 15
    Posted by guest | November 25, 2008 at 2:12 PM

    @ 10 are you sure he called him a JT cus if he did hes really askin for it

  16. 16
    Posted by guest | November 25, 2008 at 2:14 PM

    I don’t think it’s a fair assumption to say that, “I would hope that these are AAA or at least AA rated MBS.” They could have easily stipulated that the securities be rated AA or better. The fact that the term-sheet was ambiguous on this point, leads me to believe that Citi will be able to throw any crap into the ‘bad bank’ that they want. Consequently, this is probably not just the TAF/TSLF on worse terms.
    It’s hard to say how sweet/sour the loan-guarantee terms are since we don’t know what the guaranteed assets will look like! My assumption is that they are toxic waste, which leads me to believe this is a really good deal for Citi.

  17. 17
    Posted by guest | November 25, 2008 at 2:16 PM

    @11… nice ep, I have now gotten responses from both you and bess; if I could have only affected Carney in the same way I have affected your lives…

  18. 18
    Posted by guest | November 25, 2008 at 2:19 PM

    I don’t think it’s a fair assumption to say that, “I would hope that these are AAA or at least AA rated MBS.” They could have easily stipulated that the securities be rated AA or better. The fact that the term-sheet was ambiguous on this point, leads me to believe that Citi will be able to throw any crap into the ‘bad bank’ that they want. Consequently, this is probably not just the TAF/TSLF on worse terms.
    It’s hard to say how sweet/sour the loan-guarantee terms are since we don’t know what the guaranteed assets will look like! My assumption is that they are toxic waste, which leads me to believe this is a really good deal for Citi.

  19. 19
    Posted by guest | November 25, 2008 at 2:20 PM

    Who’s got my heady Z tranche?

  20. 20
    Posted by guest | November 25, 2008 at 2:22 PM

    Who is mclaughlinb?
    Please protect sources…

  21. 21
    Posted by guest | November 25, 2008 at 2:26 PM

    20 — probably Brookly McLaughlin.

  22. 22
    Posted by guest | November 25, 2008 at 2:34 PM

    Little late on this aren’t you? I read it around midnight Sunday…

  23. 23
    Posted by guest | November 25, 2008 at 3:10 PM

    The Fed was never advancing 97% against these – try more like 93%.

  24. 24
    Posted by guest | November 25, 2008 at 3:12 PM

    Non-recourse is the key. That is the reason. The facilities gave liqudity, but didn’t take the assets off the balance sheet. This caps Citi’s liability. It is worth a lot more than the TAF or the TSLF or the PDCF was and so it should come at a more onerous cost to Citi. This is the best deal Citi could have hoped for at this point.

  25. 25
    Posted by guest | November 25, 2008 at 3:19 PM

    @23 source?

  26. 26
    Posted by guest | November 25, 2008 at 3:53 PM

    Source? Citi isn’t the only Bank that is pledging these securities. Hence, my source is knowledge of it somewhere else.

  27. 27
    Posted by guest | November 25, 2008 at 3:54 PM

    Source? Citi isn’t the only Bank that is pledging these securities. Hence, my source is knowledge of it somewhere else.

  28. 28
    Posted by guest | November 25, 2008 at 4:08 PM

    Even at 93% it is still a $10b margin call dressed up like an investment.
    If there is one thing WS is good at doing, its putting on the lipstick.

  29. 29
    Posted by guest | November 25, 2008 at 6:49 PM

    What the F happened to “we’re putting the money in to create liquidity”
    That’s bullshit. I just tried to sell some mortgage backed “AAA rated-yea right” stuff today and got shit for it.
    Not even a freaking bid on some of it.
    The reality is these shit heads at these banks are taking our money and using it to buy cheap assets. All these assholes are BK except the regionals.

  30. 30
    Posted by guest | November 25, 2008 at 7:34 PM

    @29 what was the underlying? RMBS, CMBS, CDO, etc.
    How far marks below 93% Fed is advancing?

  31. 31
    Posted by guest | November 25, 2008 at 7:39 PM

    From 5:
    “can someone translate “the fed went from being long 3-100 risk on $309bn of assets to being long $27bn in C preferred shares and 10-100 risk on the $309bn with a 10% risk share with C and a higher interest rate” for those on the equity side please?”
    I don’t understand this either, would someone explain? And no, I don’t read Yahoo! Finance…

  32. 32
    Posted by guest | November 25, 2008 at 7:48 PM

    @31
    If the Fed was advancing 97% on the asset under a repo arrangement before and the “end game” is default by the issuer and the Fed taking the asset, they are taking risk from 3% of losses to 100%.
    Under the new arrangement, the Fed is taking risk from 10% loss to 100%, and shares some of the 10-100 risk (10%) with Citi and charged an upfront premium to do so.
    The substance of the transaction is nothing more than a margin call if all of the securities were repoed above 88%.

  33. 33
    Posted by guest | November 25, 2008 at 8:07 PM

    Thank you.

  34. 34
    Posted by guest | November 26, 2008 at 2:05 AM

    dealbreaker sucks…this shit is everywhere….bess come on

  35. 35
    Posted by er666 | November 26, 2008 at 8:37 AM

    “dealbreaker sucks…this shit is everywhere….bess come on”
    34 sucks and is apparently illiterate. learn to read a byline, retard.

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