Citi

I’ve had some fun these last few days proposing counterintuitive theories for why Citi might not suck as much as you probably think it does and it’s nice to see others joining in the pastime, even if this sounds a little far-fetched:

The district court’s logic appears to overlook the possibilities (i) that Citigroup might well not consent to settle on a basis that requires it to admit liability, (ii) that the S.E.C. might fail to win a judgment at trial, and (iii) that Citigroup perhaps did not mislead investors.

That piece of rank conjecture is from the Second Circuit’s opinion on an appeal* of Judge Rakoff’s rejection of the settlement between the SEC and Citi over some mortgage-backed securities. Here’s DealBook: Read more »

  • 15 Mar 2012 at 4:06 PM
  • Banks

BofA’s Success Looks a Bit Worse Than Citi’s Failure

We’ve talked about the fact that Citi “failed” the Fed’s stress tests in the sense that its plan to return capital was Too Big, and so it got whacked by markets. Bank of America passed with flying colors, so, tiny yaaaaay, but the Journal puts that in context:

The situation at Citigroup [what with the failing and such] was reminiscent of a similar setback suffered last year by Bank of America Corp. when the Fed denied its request for a dividend increase. CEO Brian Moynihan had earlier hinted raising the dividend was likely. This time around, Bank of America didn’t seek a increase of its quarterly dividend, currently one penny.

In fact! BofA seems to have some capital raising in mind:

I’m not going to like do math or anything crazy, but assuming that, but for their optimism/pessimism around capital return/raising, Citi and BofA are exactly the same, what could possibly go wrong, 20bps is $2bn of new capital, which I’m going to guess comes from BofA paying its cash bonuses in things other than cash?* Read more »

  • 13 Mar 2012 at 6:51 PM
  • Banks

Citi Will Try The Stress Test Again With A $9bn Stock Buyback

More stress tests, bleargh. I guess the news is that Citi “failed”, though I can’t get all that excited by that because it didn’t exactly “fail” in the sense of now it’s being forced to raise capital / broken up / burned to the ground. Instead it failed assuming it follows the capital plan it submitted to the Fed, which is clearly a capital-lowering rather than capital-raising plan. I ballpark it at $10bn of share repurchases and dividends,* which is … well, it’s pretty big for Citi. So they can just not do that then. Or not do quite as much of that, which seems to be their plan:

In light of the Federal Reserve’s actions, Citi will submit a revised Capital Plan to the Federal Reserve later this year, as required by the applicable regulations. The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so, subject to approval by the Board of Directors each quarter. The Federal Reserve also advised that it has no objection to Citi redeeming certain series of outstanding trust preferred securities, as Citi proposed in its Capital Plan.

We plan to engage further with the Federal Reserve to understand their new stress loss models. We strongly encourage the public release of these models and the associated benchmarks and assumptions. We believe greater transparency in this process will best serve all banking institutions and their shareholders as well as the international regulatory community and market participants, and will encourage a level playing field globally.

There are at least two ha! moments in that snotty last paragraph. First there’s the fact that the Fed had planned to release the stress test results on Thursday and got gun-jumped by Jamie Dimon. So much for Fed transparency. But also, specifically, as people are all running around suing each other about the Fed maybe kind of encouraging bank CEOs to hide material information from investors, it is odd that the Fed would have the stress test results and sit on them for two days. Imagine the scenario where Jamie Dimon, Vikram Pandit, and the Fed all know that JPM passed and was going to do a largeish buyback, while Citi failed and was going to do a … I guess somewhat smaller buyback – and they didn’t tell anyone from today until Thursday. If you sold JPM to buy C today, wouldn’t you be kind of annoyed?** Read more »

  • 07 Dec 2011 at 2:58 PM

Bonus Watch ’11: Citigroup

Thinking you’d be getting a bonus this year? Think again, says the anonymous banker who spent the day bursting innocent financial services employees’ bubbles and asking young children “riddle me this” re: why they think anyone other than their parents would not only a) give rat’s ass that they went through the normal incidence of aging known as losing one’s tooth and b) compensate them for doing so? Read more »

  • 06 Dec 2011 at 3:03 PM

Layoffs Watch ’11: Citi

Cuts still going down at the House of Vikram. Read more »

  • 30 Nov 2011 at 12:18 PM

Layoffs Watch ’11: Citi

The previously mentioned cuts have continued to go down this morning. Read more »

  • 28 Nov 2011 at 3:11 PM

Surely The SEC Is Sick Of Going To Court By Now?

A lot of legal issues look like substantive things but are actually things about what institutions can and want to do. Obviously more people want to think about questions like “should the U.S. have universal health insurance?” than about questions like “does the Anti-Injunction Act bar lower federal courts from reviewing the individual mandate until taxes are collected in 2014?,” but judges tend to get into the latter question. That’s why they’re judges. That difference can make judicial decisions sort of hard to interpret.

Today everyone’s favorite federal judge, Jed Rakoff, surprised few but pleased many by beating the ever-loving crap out of the SEC’s settlement with Citigroup, in which Citi had agreed to pay the SEC $285 million in exchange for the SEC not asking too many questions about its synthetic CDO deals that were maybe not so hot. Here’s the gist of it:

Applying these standards to the case in hand, the Court concludes, regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest. Most fundamentally, this is because it does not provide the Court with a sufficient evidentiary basis to know whether the requested relief is justified under any of these standards. Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt, the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.

Here, the S.E.C.’s long-standing policy – hallowed by history, but not by reason – of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations, deprives the Court of even the most minimal assurance that the substantial injunctive relieve it is being asked to impose has any basis in fact.

Right on! But also maybe just a little disingenuous. Judge Rakoff was not being asked for “substantial injunctive relief,” not really. It looks like that on the surface, in the sense that (1) the SEC and Citi worked out a deal where Citi gives the SEC money, promises not to violate the securities laws again, and agrees to do some remedial stuff like telling its salespeople to stop peddling synthetic CDOs structured by the protection buyer without telling anyone because somehow that is still a problem; and in the sense that (2) the SEC was asking Judge Rakoff to enshrine that agreement in an injunction. And then, if Citi didn’t keep its agreement – by not doing the remedial things, say, or by violating the securities laws again – the SEC could go back to court and say “hey, Citi violated the injunction” and Judge Rakoff could hold Citi in contempt and fuck. it. up. Read more »