It was a teary goodbye today, as Citigroup bade farewell to its internal hedge fund unit, Citi Capital Advisors, redubbed Napier Park Global Capital. And why wouldn’t parting be such sweet sorrow for the men and women who Citi literally gave the business away to, gratis? Read more »
The great reshuffling of deck chairs continues. Yesterday we reported on high level departures at Lehman. This afternoon Reuters is reporting that Antonio Cacorino, Citigroup’s co-head of global investor sales, is leaving the bank to “pursue new opportunities.” Reuters cites an internal memo they obtained (send it our way:email@example.com).
“Cacorino has been at Citi for 20 years, and is the latest multidecade veteran to leave the bank under Vikram Pandit, who became Citi’s chief executive late last year,” Reuters writes.
Citigroup sales co-head Cacorino to leave: memo [Reuters]
Earlier this week Citigroup chief executive Vikram Pandit summoned 60 executives to the megabank’s private country club in Armonk, N.Y. to present his plan to restore Citi’s lost luster.
We won’t bore you with the details of the plan. (But Eric Dash of the New York Times will do so, if you insist.) It’s mostly platitudes that seem unlikely to restore the lost morale of executives who’ve seen their fortunes plummet with Citi’s share price. The real problems with this plan begin before the details. They begin, in fact, with the title Pandit gave his plan–”The Rules Of The Road.”
What could be wrong with that?
The power of federal prosecutors is on gruesome display in the latest issue of Fortune, which chronicles the story of former Citigroup commodities trader Craig Gile who found himself jailed for allegedly cooking the books at his trading desk. The strongest evidence against him is that he seems to have corrected some reports that overstated the value of his desk’s assets, which prosecutors construed as evidence of knowledge that his desk was engaged in chicanery. First Citigroup flipped on him and then his immediate supervisor. With the odds stacked against him, Gile (whose name is unfortunately pronounced like “guile”) pleaded guilty and was sentenced to a year in federal prison.
The prosecutors seem to have been motivated more by the urge to set an example for others than by the gravity of Gile’s alleged wrong-doing. Here’s how Fortune describes the situation:
[W]hen it comes to Wall Street, in the absence of clear rules and a lack of close regulatory supervision, the thinking among prosecutors and judges seems to be that the aggressive pursuit of a select few will be a deterrent to thousands of other traders who might be similarly tempted. Jonathan Streeter, the assistant U.S. attorney who handled the case, said he couldn’t comment. However, an attorney who formerly worked in the Southern District says there are very stringent rules in the office about how far a prosecutor can bend to show leniency to a defendant. “Once that train gets on that track,” says Chauvin, “it is almost impossible to derail.”
Trader, father, veteran, convict [Fortune]
What was it that prompted JP Morgan cheif Jamie Dimon to call Citigroup’s Vikram Pandit a jerk? Apparently Pandit was asking how the deal to buy Bear Stearns would affect the risk to Bear’s trading partners on certain long-term contracts. This was a crucial issue because many of Bear’s counter-parties had been unwinding contracts for fear the investment bank might collapse. As part of the deal, JP Morgan had put in place a durable guarantee that it hoped send a very strong signal that would stop the run on Bear.
But for some reason the Pandit’s question irked Mr. Dimon. “Stop being such a jerk,” he told Pandit. A little over a week later, JP Morgan would attempt to get out of the guarantee and unnamed sources started saying that JP Morgan never meant to enter into it to begin with.
Probably our favorite part of yesterday’s final installment of the Wall Street Journal’s three-part series on the destruction of Bear Stearns is an exchange that takes place between JP Morgan Chase CEO Jamie Dimon and Citigroup CEO Vikram Pandit.
As you probably know, Dimon was the heir apparent to ascend to the top of Citigroup after serving for years as the right-hand man of banking empire building Sandy Weil. At the last moment, however, he was forced out of the bank and the top spot was handed to Citigroup’s lawyer. Fast forward a few years and Dimon gets to run Citigroup’s rival, JP Morgan, and that uppity lawyer is forced to resign in disgrace. Pandit is summoned up to take over Citi.
And, after the jump, here’s Dimon hazing the new kid on the Wall Street CEO block.
Bloomberg new has gone especially gloomy lately. On Tuesday it was the really, really long expose on counterparty risk in credit default swaps. Today Mark Pittman follows up on variable interest entities, the ugly step child of the off-balance sheet special purpose vehicles that Enron made infamous.
We wrote about these way back in February, when people were first waking up to the fact that banks had undisclosed exposure to mortgage backed securities held by VIEs. Now lawmakers, regulators and accounting standards people are considering rules that would prevent off-balance-sheet treatment for VIEs.
Bloomberg highlights one short-lived VIE with a particularly unfortunate name. Launched by Citigroup just as the mortgage market was collapsing, the $2.5 billion entity known as Bonifacius Ltd was loaded up with subprime mortgages. Six months later it was dead. Bonifacius, as our readers with classics degrees undoubtedly know, was named called “the last of the Romans” by historian Edward Gibbon, author of The Decline And Fall Of The Roman Empire. Bonifacius “fought and died for a fading empire.”
Citigroup’s `Last Roman’ CDO Shows Enron Accounting [Bloomberg]
Citigroup might want to rethink its insomniac slogan. Although the “Citi Never Sleeps” slogan is meant to convey a sense of never-ending vigilance, a new study shows that sleep deprivation leads to a loss of attentiveness and interferes with visual processing.
The study, which will be published in the Journal of Neuroscience, shows that losing only one night’s sleep has a dramatic effect on the brain, making it prone to short, sudden shutdowns. The study suggests that sleep-deprived people alternate between periods of near-normal brain function and dramatic lapses in attention and visual processing.
“It’s as though it is both asleep and awake and they are switching between each other very rapidly,” said David Dinges of the University of Pennsylvania School of Medicine. “Imagine you are sitting in a room watching a movie with the lights on. In a stable brain, the lights stay on all the time. In a sleepy brain, the lights suddenly go off.”
Losing just one night’s sleep makes brain prone to ‘sudden shutdowns’ [Evening Standard]
The $13.25 billion acquisition of Electronic Data Systems by Hewlett-Packard—the ninth largest tech deal ever, according to DealLogic—has moved the M&A league table standings, DealJournal Heidi Moore reports. Before the deal was announced, Goldman Sachs and Morgan Stanley led this year’s ranking from advising technology companies on mergers. But neither bank has a role in the H-P deal, pushing them down in the rankings
“Goldman ranked first with $14 billion of announced deals to its credit this year, and Morgan Stanley ranked second with $11 billion according to investment-banking research provider Dealogic,” Moore writes. “But now, Goldman is in third place, displaced by Lehman Brothers and J.P. Morgan. Lehman has jumped from fifth to first place with $17 billion of deals to its credit, while J.P. Morgan — which, just yesterday, languished in seventh place with only about $2.2 billion of tech deals to its credit — has vaulted to second place in the rankings from seventh place. Morgan Stanley has fallen to No. 5.”
Citigroup and Evercore Partners advised Electronic Data on the deal. J.P. Morgan Chase and Lehman Brothers advised Hewlett-Packard.
Hewlett-Packard: The Advisers [Deal Journal]
Today at Citigroup, in accordance with Vikram’s promise to shareholders that the company will begin taking steps toward realizing the enormous potential of the C, a member of the fixed income group was paid 3 grand to execute “the reverse bowl cut,” according to sources. To claim the money, he must sport the haircut proudly on the trading floor for a full calendar week. We’re told the money is being donated to charity.
Pictures after the jump.
To hear the heads of Wall Street’s largest financial institutions speak, the worst of times are behind us. But a new wave of pressure seems mounting as corporate borrowers get squeezed by tightening credit and a slowing economy. High yield bond defaults are up and going higher as companies find lenders unwilling to refinance risky loans (non-investment grade lending is down 70% this year). And now companies have begun drawing down on their revolving lines of credit, sucking even more capital away from Wall Street, the New York Times is reporting.
Those of you not involved in corporate finance might not appreciate how much banks hate when borrowers draw down on revolving lines of credit. Typically a corporate borrower will have a revolver built into its larger credit facility. But unlike bond issuances and syndicated term loans, banks cannot easily hand the credit risk and capital requirements onto other investors. In short, when borrowers draw down revolvers that money comes out of Wall Street’s coffers.
Banks are already under tremendous balance sheet pressure following the $300 billion write-downs and credit losses over the past year, and the threat of corporations drawing down their revolvers could exacerbate the situation. The New York Times, in a somewhat panicky tone, notes that in a worst case scenario of massive revolver draws, banks could be forced to sell assets or raise money to cover the loans.
The banks are downplaying the risk, of course. “Even in the most volatile markets, including last summer, we have seen very few companies draw down their revolvers,” Chad Leat, chairman of the alternative asset group at Citigroup, tells the Times. “Occasions when it did happen have been unique.”
We find this completely reassuring. Banks, especially Citigroup, have proven so effective at anticipating crises in the past year that we wouldn’t even dream of doubting Chad.
Banks Fear Increased Demand for Corporate Emergency Loans [New York Times]