Good, Bad & Ugly Bank

Here’s what the Citigroup nationalization plan looks like at the start. The most important aspect of today’s news is the implementation of the “good bank/bad bank” model.

Vikram Pandit in announcing earnings (see below) laid out the plan to transform Sandy Weill’s supermarket banking model into a government subsidized bodega.

Citi posted an $8.3 billion fourth-quarter loss, which excluding asset sales, is $2.44 a share.

Pandit’s creating a new division called Citicorp to retain businesses including: branch banking, corporate lending, securities underwriting, transaction processing and private banking.

The bank also will create Citi Holdings for “non-core” assets including CitiFinancial, Primerica, brokerage units, retail asset management, and a “special asset pool,” that should be housed in the Yucca Mountains next to our government’s other toxic waste. The unit will “house” the assets the government agreed to guarantee.

Bank of America released disappointing earnings this morning as well. BofA recorded its first quarterly loss since 1991, $1.8B or 48 cents a share also slashing its dividend to a penny from 32 cents.

BofA did not include $15.3B loss in Merrill, which closed this quarter.

Earlier today Ken Lewis received a $20B capital injection and $118B backstop on future losses on the Merrill deal.

BofA will issue $24B in preferred shares to Uncle Sam for the capital infusion.

Here’s the irony, stocks of both banks are looking higher because no one wants to be on the other side of government trade. I have to believe that the Citi liquidation will continue as the “good bank” is broken up in a fire sale and the government eats the “bad bank.”

More on the Citi restructuring soon.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s