December 4, 2009

The overhang of Treasury’s Citigroup stake is causing problems:

The U.S. Treasury Department’s refusal to sell its 34 percent stake in Citigroup Inc. is hampering the bank’s plans to repay $20 billion of remaining bailout funds, people familiar with the bank said.

Executives at the New York-based bank are growing frustrated because they can’t sell stock to raise money for repayment until the Treasury signals when and how it will unload its 7.7 billion shares, said the people, declining to be identified because the matter is under discussion. Investors may be reluctant to buy shares because a Treasury sale could drive down the price.

On May 20 I mentioned the idea that what trading floors need is a little less testosterone and a little more femininity. In what is possibly the most amazing story ever published, Dealbreaker documents how this idea was taken seriously at SAC Capital … maybe a little too seriously. You’ll laugh! You’ll cry! You’ll send SAC a redemption order! At least it’s more interesting than “boo-hoo-hoo, my boss told a blonde joke“.

Geithner is in a slanging match with Goldman:

In the interview, the Treasury chief also disputed claims made by Goldman Chief Executive Officer Lloyd Blankfein that his firm would have survived last year’s financial crisis without assistance from the federal government.

“The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run,” Geithner said.

Of the biggest banks, “none of them would have survived a situation in which we had let that fire try to burn itself out,” he added.

Assiduous Readers will note that the disputants are not talking about the same thing: Blankfein’s talking about the TARP capital injection to his particular firm; Geithner is talking about capital injections and liquidity provision in general.

A thoroughly boring day on the preferred share market, with low volume and no entries whatsoever on the performance highlights table. However, PerpetualDiscounts eked out a gain of 3bp while FixedResets were up 4bp.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
(at bid)
Mod Dur
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.0220 % 1,502.1
FixedFloater 6.05 % 4.16 % 38,693 18.58 1 0.0000 % 2,574.5
Floater 2.60 % 3.05 % 98,057 19.54 3 -0.0220 % 1,876.6
OpRet 4.86 % -4.77 % 142,843 0.08 15 0.1123 % 2,310.5
SplitShare 6.35 % -7.56 % 274,999 0.08 2 -0.0219 % 2,114.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1123 % 2,112.7
Perpetual-Premium 5.87 % 5.83 % 61,205 6.01 7 -0.1530 % 1,880.3
Perpetual-Discount 5.81 % 5.87 % 183,682 14.06 67 0.0290 % 1,789.9
FixedReset 5.43 % 3.76 % 370,210 3.91 41 0.0421 % 2,153.4
Performance Highlights
Issue Index Change Notes
No individual gains or losses exceeding 1%!
Volume Highlights
Issue Index Shares
TD.PR.N OpRet 100,000 Desjardins crossed 100,000 at 26.35.
Maturity Type : Call
Maturity Date : 2010-01-03
Maturity Price : 26.00
Evaluated at bid price : 26.30
Bid-YTW : -4.52 %
TRP.PR.A FixedReset 32,595 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-04
Maturity Price : 23.39
Evaluated at bid price : 25.80
Bid-YTW : 4.04 %
BMO.PR.O FixedReset 28,358 Desjardins crossed 18,800 at 28.08.
Maturity Type : Call
Maturity Date : 2014-06-24
Maturity Price : 25.00
Evaluated at bid price : 28.05
Bid-YTW : 3.66 %
RY.PR.A Perpetual-Discount 25,245 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-04
Maturity Price : 19.96
Evaluated at bid price : 19.96
Bid-YTW : 5.62 %
RY.PR.R FixedReset 25,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 27.77
Bid-YTW : 3.55 %
CM.PR.M FixedReset 23,525 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 27.83
Bid-YTW : 4.03 %
There were 24 other index-included issues trading in excess of 10,000 shares.

4 Responses to “December 4, 2009”

  1. prefhound says:

    Isn’t another reason bailout money helped save Goldman Sachs the rescue of AIG so that it could pay tens of billions of dollars of CDS payouts to GS, among others? (or is this just small potatoes?)

    Seems to me that Treasury/Paulson only wanted to do one rescue (of everybody big) in the hopes they wouldn’t have to do even more later. Once dominoes started falling it could go on in unpredictable ways — and Goldman was a domino, too. By not picking “losers” to support, there is still some semblance of competition with more survivors — a competitive market is a valid social objective for government.

  2. jiHymas says:

    Any argument that the AIG bailout was also a Goldman bailout must deal with Goldman’s assertion that they were hedged:

    In addition, Goldman Sachs informed SIGTARP that it had purchased additional credit risk protection against an AIG default. Of the $22.1 billion of credit default swaps outstanding in November 2008, approximately $13.9 billion was resolved through Maiden Lane III. For that portfolio, Goldman had already received $8.4 billion of collateral payments from AIG, representing AIG’s calculation of the decline in the fair market value of the underlying CDOs. However, Goldman Sachs believed that the drop in value was actually $9.6 billion, and it purchased credit default swaps and other protection from third parties that would have paid Goldman Sachs slightly more than the difference ($1.2 billion) had AIG defaulted on its obligations. That additional protection, which related to all of Goldman Sachs’ AIG hedges, cost Goldman Sachs more than $100 million. Thus according to Goldman Sachs, even if AIG defaulted, Goldman Sachs would be made whole on the Maiden Lane III credit default swaps in light of the collateral it already held ($8.4 billion), the additional protection it had purchased (totaling more than $1.2 billion), and what it calculated to be the value of the underlying CDOs ($4.3 billion). As a result, it did not consider itself materially at risk if AIG in fact defaulted.

    Goldman was also well collateralized on their AIG exposure; this is usually brought up in an accusatory fashion, blaming GS for AIG’s potential default, when in fact they did exactly what a prudent counterparty would have done.

    Who knows? Maybe GS is lying; maybe they did receive a direct and irreplacable benefit from the AIG bailout, but one way or another I have not yet seen critics of Goldman address these inconvenient points.

    I quite agree that Treasury wanted to do one big bail-out across the board, but their motivation does not affect the evaluation of Goldman’s status as a “have” or “have-not” brokerage.

  3. jiHymas says:

    I should also point out that if other brokerages (hello, Merrill Lynch!) had been as prudent as Goldman, then it is probable that:

    • AIG would have run out of collateral sooner and collapsed sooner, almost certainly a good thing
    • The bail-out to save the financial system might – might! – not have been necessary, since the systemic players would have been hedged; however, this depends on the cumulative effect on the non-systemic players of having AIG default, both directly and via CDS protection sold to the systemic players

    But no. Moronic risk managers (hello CIBC!) did not insist on collateral, did not hedge the resultant exposure and moronic regulators (hello everybody!) did not think it possible for an AAA institution to fail.

    But Goldman continues to be attacked for causing AIG to default by its collateral demands. One wonders what the attackers think of the concept of a central clearing house … the big point behind a central clearing house is that it will demand collateral.

  4. prefhound says:

    Beautiful illustrative answer, thank you.

    Maybe we should have let GS run the bailout….

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