Opening Bell: 11.21.08


Citi Group Eyes Options, Including Merger (Reuters)
After the losses over the last week the Citi board is looking for options, and futures are up on expectations. I don't know what there's going to be for them on the street, though, outside of liquidation and absorption into other firms.
To the point of liquidation, MS has already weighed in with a resounding "no", while JP Morgan isn't saying much - but I doubt that after the WaMu integration and writedowns they're going to have a lot of capital reserve to work with. Barclays doesn't have much on the table, either - and BofA is at capacity. I think if we're going to see Citi unwind, it's going to have to be slow and methodical: I'm sure someone will pick up the consumer deposits, but the rest of the company is probably looking at much less pleasant times.
Harkin Moves Forward With CDS Exchanges (WSJ)
"Senate Agriculture Committee Chairman Tom Harkin plans to introduce a bill Thursday that would force all over-the-counter derivatives, including credit-default swaps, onto regulated futures exchanges."
Not an unusual or ill-timed move; ICE and the CME have both been pushing forward with their plans for a CDS exchange. The exchange will allow for better regulation of the instrument, which few people actually take the time to understand (though of recent, everyone seems to be talking about them).
BNP IB Unit To Face Bonus Cuts (Bloomberg)
"Europe's third- biggest bank, may cut bonuses by more than 70 percent at its corporate and investment bank after profit plunged in the first three quarters of the year."
It's only a matter of time, BNP, before Cuomo finds a way to annoy the shit out of you, too.
All US Financials To Be Nationalized (CNBC)
Eclectica Asset Management CIO Hugh Hendry is under the impression that all or at the very least the vast majority of US Financial institutions will be under the thumb of the Senate by the end of the year. While the argument isn't fully detailed, I imagine it's a variant of the tried and true "too big to fail".
Paulson Questions Wall St Pay (WSJ via DJNW)
"Mr. Paulson, who had a lucrative career on Wall Street, also questioned compensation practices of the financial-services industry, saying policymakers need to ensure those practices don't "encourage unsafe and unsound risk-taking or reward failure.""
"And he took aim at the practice of slicing and dicing loans and packaging them for sale to investors, saying there needs to be a "wholesale review" of such securitization."
Usually casting stones is a diversionary tactic, the idea being that if you attack something that everyone dislikes, you'll draw the attention off of yourself long enough that maybe no one will notice how monumentally you fu*#ed things up. I can only imagine that's what Paulson's trying to accomplish, as there's absolutely jack shit wrong with tranching. Let's review the basics: it distributes default risk across a pool, and it allows for the segmentation of risk classes among risk seekers. Tranching had absolutely nothing to do with the current credit crunch; that's a myth that needs to get dispelled quickly.
If you're going to point fingers, it would be wise to start with the mental powerhouses that are the Regional banks. The Regionals, for those of you late to the game, issued loans to speculative contractors, and then facilitated the issuing of loans to cover the original loans, increasing their bottom line. This is only a problem when you consider that they knew that the second round of loans could be packaged and sold - meaning they didn't face any of the default risk - and the first round couldn't, which in turn means it was in their interest to make risky loans to cover their in-house loans. America got screwed by the bank at the street corner, not the one on Broad Street.
--William Richards