Nationalizing Citigroup

US bank balance sheets took a further beating in the 4th quarter in ’08 on huge downgrades on toxic paper. Oppenheimer’s Meredith Whitney says in a report issued yesterday that $2.4T was lost in mortgage-related securities, such as: MBSs, CDOs, ABSs and such.

The banks T-1 capital, the amount of capital needed to back the banks’ obligations on the illiquid, toxic paper that has caused most of the write-downs in ’08. Whitney estimates another $40B in write-downs for this year.

According to the report Citigroup has already hit up Uncle Sam for 113.8B and will need to raise a large block of capital to cover its degraded balance sheet. The only avenue open to CEO Vikram Pandit is Ben Bernanke’s window.

This is an example of why I believe Citigroup will need to be nationalized by the government. The one-time largest global bank is so broken that no other bank or consortium of banks can bail out the firm.

Capital ratios have declined on toxic paper downgrades by 2.3T for the quarter. More capital is needed to raise t-1 capital Oppenheimer’s Meredith Whitney.

ADP shocked the market when it came out with its unemployment number for Dec of ’08. ADP estimated 689,000 jobs were lost prior to the holidays.

ADP says it has changed the metric for how it calculates its estimate. The ADP numbers in the past has underestimated its private sector jobs number.

The estimate on the street for Friday’s Bureau of Labor Statistics’ number is for 500,000 jobs loss. Of course this number is fuzzy because the BLS will include in this month’s report jobs they believe were created but not reported under its Birth/Death model.

This fudging of the numbers is why I said the February number would end President-elect Obama’s honeymoon for the markets, because January’s unemployment number will not include any of these phantom jobs.

Stock pickers and brokers are a devious bunch. You hear many citing that the S&P 500 index is up 24 percent from its November lows, which they say is bull market for the index.

A majority of that move was made by traders on low volume days around the holidays in order to window dress their ’08 losses.

As credit markets continue to constrict, many fraudulent characters are being exposed. Bernie Madoff may be a poster boy, but Satyam Computer’s CEO Ramalings Raju came out yesterday that he lied about the amount of capital the company had on its balance.

India’s fourth largest computer outsourcing firm’s stock plummeted after news of a $1B shortfall. Ironically Satyam means “truth” in Sanskrit.

Looking ahead, and it may be a stretch, I’m wondering if other insular communities will suffer from internal scammers.

Looking at Bernie Madoff and the amount of pain and suffering his alleged $50B fraud has wrecked havoc on the US Jewish communities and philanthropy.

Will the Satyam scandal have similar destruction in Mumbai and New Delhi as the CEO struggled to keep his company afloat? Will the next shoe drop in the many different Asian communities?

In a sign that the third horse of the apocalypse is coming over the hill, oil traders not happy to trade crude have decided to become OPEC members by leasing supertankers to store oil for future delivery.

Oil-pit trading companies are now holding almost Algeria’s one-year production supply in tankers docked around the world awaiting delivery when futures price increase.

This is a prime example of a slowing global downturn, where it is cheaper to store crude than deliver it to market. One of point, has is this not considered insider trading if market participants are manipulating prices and supply.

See you on Tuesday for a discussion on Obama’s stimulus program.


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