During their very, very short times at the helm of the nation’s most boring bank, Robert Rubin and Vikram Pandit apparently devised and implemented a brilliant and nefarious plan to seize the levers of power in Washington. Read more »
Terra Firma Gets Second Chance To Prove It Only Bid For EMI Because It Thought Everyone Else Would TooBy Matt Levine
Fundamentally if you’re a sell-side M&A banker your job is to find a buyer and get them to overpay for the company you’re selling. I mean, oh, you know, you’re a repeat player and reputational concerns and continued business relationships and all that militate against getting them to overpay too much. But mostly, the more they overpay the better you’ve served your client. Also, though, those reputational things etc., plus lots of fraud laws, militate against getting buyers to overpay by deceiving them about stuff relating to the company you’re selling. You can’t, like, just go forge financial statements. That’s cheating, and not in an admiring hahaha-you-got-me way. In a jail way.
So what’s left? One thing you can do is gently deceive them about the competitive dynamic. This might seem a little silly – if you’re buying a company, shouldn’t you be carefully determining its fundamental value rather than just bidding a penny more than whoever else is in the auction? – but in fact a lot of the M&A function is pretty much exactly that. You set up an auction, you demand confidentiality, you forbid bidders from talking to each other, you don’t tell them each others’ bids, you don’t announce to the world when a bidder has dropped out, all with the goal of creating the appearance of more competition than there is. When the bidders share too much information about their bidding plans with each other, you sue them. If a possibly viable but spivvy bidder comes along, you encourage them to stick around and throw out big numbers, just to keep the other bidders on their toes. “Yes, Carl Icahn, please, tell us more about your plans to buy our company,” is a sentence you might find yourself saying. You don’t outright lie, but you do your best to create the impression that your particular fertilizer-byproducts company is the prettiest girl at the dance or whatever the going metaphor is.
Citi announced its quarter this morning and there are various ways to tell that it was good, of which “the stock was up” is probably the main one. A possibly less objective test is that, back in March, Mike Corbat told everyone how he would grade himself, if he was grading himself. As he put it today:
Last month, I presented three targets we aim to reach by the end of 2015. First is achieving an efficiency ratio in Citicorp in the mid 50% range. Second, we want to generate a return on Citigroup’s tangible common equity of over 10%. And third is reaching a return on Citigroup’s assets of between 90 and 110 basis points in a risk-balanced manner.
Today Citi announced $4.0 billion of net income (excluding CVA/DVA), or $1.29 per share, which I work out to around 82bps of ROA, 9.86% ROTCE, and a 55.6% Citicorp efficiency ratio.1 So … pretty good, all in all?
One oddity of Corbat’s three-part plan is that two of the parts sort of collapse into each other. Read more »
Back in the pre-Lehman days Citigroup owned a lot of things that, in hindsight, turned out to be awful. Everyone knows that now but various people didn’t know it then, including (1) the people who bought some of those awful things from Citi, (2) the people who bought stock in Citi while it hung on to the bulk of those awful things, (3) the people who bought bonds in Citi while it hung on to the bulk of those awful things, (4) the people who bought preferred stock in Citi … you get the idea. The world being as it is – full of lawyers1 – each of those groups of people is slowly making its separate peace with Citi. We’ve talked about some of them before, including a rather controversial $285mm SEC settlement on behalf of the awful-thing-buyers and a $590mm private settlement on behalf of the stock-buyers. Today brings the biggest settlement yet, $730mm on behalf of the bond- and preferred-stock and TRUPS-buyers, who lost billions when Citi defaulted on its bonds.
Hahahaha no I’m kidding, Citi never defaulted on its bonds. Here’s the Journal:
In the case settled Monday, plaintiffs alleged the New York company misled them about Citigroup’s possible exposure to losses on securities backed by home loans, understated its loss reserves and said some assets were of higher credit quality than they actually were. The pact covers 48 preferred-stock and bond deals between May 2006 and November 2008.
Those possible exposures became real exposures, and Citi incurred plenty of unpleasantness. But these bonds mostly didn’t. Read more »
One of the nice things about last year’s Fed bank stress tests was that they were released, and everyone was like “OMG Citi failed!!,” and then we all calmed down and realized that all that meant was that Citi’s capital return plans had failed, so it couldn’t launch a big share buyback, but it wasn’t going to be smashed into dust as a warning to its compatriots. That turned out to be cold comfort for Vikram Pandit but was soothing for the rest of us. This year, in part to avoid the Vikram thing, the rules have changed: today the straight-up stress test results were released, while the Fed will approve or reject capital return proposals next week, and there’ll be a lot of weird disclosure gamesmanship in the interim. Early signs point to Citi being out of the doghouse, and Goldman possibly being in it.
Also Ally Bank failed, sorry! Legit failed, not failed pro forma for capital return. So, smashed into dust.
Here is a chart you may or may not find amusing:
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 »