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The Kitchen Sink Does Not Include $37.3 Billion In Subprime Exposure

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So this is the much vaunted kitchen sink? Citigroup took a $18.1 billion write-down in sub-prime related assets. But as they just discussed on the conference call, Citi still had $37.3 billion in direct and indirect subprime exposure at the end of the quarter. That's still a lot of risk on in asset classes that no-one can confidently value. Even Citigroup admits that it is just looking at the ABX and making intelligent guesses.
If we're following this correctly, Citi began the quarter with $55 billion in exposure to subprime and ended with $37 billion. A huge chunk of the $55 billion was in CDOs, which the company had valued around$42.9 billion. It sold $800 million (although it's not clear what the discount against book was) and wrote-down a whopping $14.3 billion. Our high level quant skills tell us this leaves Citi with $29.3 billion in CDO exposure. That's not quite the coming clean balance sheet the bulls were talking about yesterday.
What's worse, Citi's chief financial officer is stressing that there is no market against which to mark these asset backed CDOs. So these write downs are just mark-to-model. Educated guesses by the folks whose educated guesses got us into this mess in the first place.
You can already hear the people who got long on Citi yesterday running for the doors.

Well, that call did not end pretty. There was a lot of talk about how the Citi team needed to impress investors by putting forth a new plan for the future and demonstrating they have a clear grasp of the risks faced by firm, particularly in the credit markets. The Q&A portion of the conference call pretty much did the opposite, with the chief financial officer having to admit many times that he either wouldn't comment or didn't know the answer to detailed questions about credit market exposure. Merrill's Guy Moskowski asked about what the original par value of the CDO portfolio. Crittenden said he didn't know. How about specifics on modeling versus market tests? Nope, just more hand-waving. Bess Levin favorite Meredith Whitney asks about CDO valuations and Crittenden declines to confirm her estimates. Ron Mandel asks about the ABX but Critter doesn't have the answer to that either. I guess we can give him Socratic credit for knowing what he doesn't know. And at least Pandit didn't end it by saying, "Let's get the fuck out of here."