The US government announced the conversion of $25 billion worth of preferred stocks into common equity, thus increasing their stake to 36%. This action forced GIC and Prince Alawaleed tfrom Saudi Arabia to follow suit. GIC now holds 11% in Citigroup. All parties forego their dividend and guaranteed cash flow for a stake in the embattled bank. Nevertheless, the threat of nationalization refuses to go away. Citigroup share prices drop to $1.50/share, the lowest since 1990. The US government still have another option to convert the remaining $20 billion in preferred stocks. This will boost its tangible common equity ratio to 4 or $81 billion. Previously it was below 2, which is considered weak. However, its Tier capital ratio at 11.6% is still the highest in the industry. But it doesn't mean much compare to the vast amount of toxic asset Citigroup is currently holding.
I just with Obama would just come and say "Read my lips, no nationalization, got it?" The flip flop statement by US government and politician in US Congress will only play into the hands of speculators and short sellers. Friday's Wall St 111 points drop is certainly due to Citigroup alone and it won't go away unless effective action is done to solve this problem once and for all. I have suggested creating a bad bank like Danaharta to sweep aside the toxic asset and recapitalize the US financial system. The current plan puts Citgroup in suspension mode. Firstly, Citigroup cannot get out from this mess because of write offs as their revenus would be insufficient to cover the write downs. Secondly, they are a "pariah" in the credit and equity market, unable to raise fund. Unwanted bastard! Thirdly, Citigroup is currently facing the second wave of credit crisis. The first one was just confined to sub prime derivatives instruments. Now it will extend to housing mortgage and credit cards as the economy worsem. I suspect Malaysian banks will be put to the sword end of this year. Finally, Citgroup faces very serious loss of confidence by the day. If this confidence is not restored soon, it will provoke a bank run. I remember 10 years ago, my mum and aunties were asking me whether it is save to put money in Maybank during the Asian currency crisis. Now, my mum ask whether it is save to put money in Citibank! I never thought it would come to this point. Also I remember, I told UTAR students at the beginning of sub prime mortage crisis, that Citigroup is rock solid even at a loss of $20 billion. How wrong was I! I believe all the financial guys were caught off guard. Temasek and GIC lost 30% of its value in 2008. The number is expected to be higher by now as it does not take into consideration the global financial meltdown that started in October 2008. At this moment, technical wise and fundamental factor seems to suggest that the worse is not over yet for Citigroup and the rest of US economy. The US economy contracted by 6.2% GDP last quarter. US companies continue to cut jobs and dividends. The lates is GE, which slashed 66% of its dividend. Earlier JP Morgan annnounced 87% cut in dividend. Even Buffet's portfolio has dropped. Looks like nobody is spared from this crisis, unless you are holding 100% cash or shorting the futures index. The gold continue to climb and oil price prices continue to fall.
I just with Obama would just come and say "Read my lips, no nationalization, got it?" The flip flop statement by US government and politician in US Congress will only play into the hands of speculators and short sellers. Friday's Wall St 111 points drop is certainly due to Citigroup alone and it won't go away unless effective action is done to solve this problem once and for all. I have suggested creating a bad bank like Danaharta to sweep aside the toxic asset and recapitalize the US financial system. The current plan puts Citgroup in suspension mode. Firstly, Citigroup cannot get out from this mess because of write offs as their revenus would be insufficient to cover the write downs. Secondly, they are a "pariah" in the credit and equity market, unable to raise fund. Unwanted bastard! Thirdly, Citigroup is currently facing the second wave of credit crisis. The first one was just confined to sub prime derivatives instruments. Now it will extend to housing mortgage and credit cards as the economy worsem. I suspect Malaysian banks will be put to the sword end of this year. Finally, Citgroup faces very serious loss of confidence by the day. If this confidence is not restored soon, it will provoke a bank run. I remember 10 years ago, my mum and aunties were asking me whether it is save to put money in Maybank during the Asian currency crisis. Now, my mum ask whether it is save to put money in Citibank! I never thought it would come to this point. Also I remember, I told UTAR students at the beginning of sub prime mortage crisis, that Citigroup is rock solid even at a loss of $20 billion. How wrong was I! I believe all the financial guys were caught off guard. Temasek and GIC lost 30% of its value in 2008. The number is expected to be higher by now as it does not take into consideration the global financial meltdown that started in October 2008. At this moment, technical wise and fundamental factor seems to suggest that the worse is not over yet for Citigroup and the rest of US economy. The US economy contracted by 6.2% GDP last quarter. US companies continue to cut jobs and dividends. The lates is GE, which slashed 66% of its dividend. Earlier JP Morgan annnounced 87% cut in dividend. Even Buffet's portfolio has dropped. Looks like nobody is spared from this crisis, unless you are holding 100% cash or shorting the futures index. The gold continue to climb and oil price prices continue to fall.
No comments:
Post a Comment