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An Effort to Stem Losses at Citigroup Produces a Renewed Focus on Risk

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moh malekpour

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Ben Bernanke, meet Gary Crittenden. While you’re easing credit, he is tightening it.
Citi and its rivals are reacting to a period when credit standards were very loose, and many poor loans were made, leading to the current round of multibillion-dollar write-offs.

One measure of that came in a detail of the write-downs Citi announced. At the end of September, it put the value of some mortgage securities it owned at $2.7 billion. It had purchased those securities intending to repackage them as part of collateralized debt obligations and sell securities in the C.D.O.’s to investors.

The collapse of the C.D.O. market made such sales impossible, and Citi still owns the securities. But it has decided they are worth about 5 percent of what they had been, and has taken a write-down of $2.6 billion.

The write-downs taken by Citi, and by some rivals, are based on assumptions about how bad the mortgage and home-price problem will become. If those assumptions turn out to be too pessimistic, then the assets written down Tuesday will turn out to have greater value.

On the other hand, if the assumptions are too optimistic, more write-downs may come.

Many of the assumptions were not disclosed, but Mr. Crittenden did say that Citi was assuming that home prices would decline 6.5 percent to 7 percent in 2008, and by a similar amount in 2009. He did not say what Citi was assuming for later years.

Citi’s shares fell $2.12, to $26.94, a 7.3 percent loss that left the price less than half its level of a year ago.

That is bad news for investors for a reason other than the obvious one. The company plans to raise $14.5 billion by selling convertible preferred stock, with a 7 percent annual coupon. Of that, $2 billion will go to the public and the rest to a group of investors, including the government of Singapore and Sanford I. Weill, Citi’s former chief executive.

The conversion price of that new issue is to be 20 percent over the market price of Citi stock, but Citi refused to say over what period the market price would be calculated. The lower the price, the more dilution will be produced for existing shareholders.
 

Randolph Kinney

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North Carolina
I really don't believe Citi has written off enough. They hold derivatives that are leveraged anywhere from 25 to 1 up to 200 to 1. Essentially, these assets have no value at all; it was ate up by the loans that have no equity backing.
 

Austin

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Jan 16, 2002
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Virginia
The company plans to raise $14.5 billion by selling convertible preferred stock, with a 7 percent annual coupon. Of that, $2 billion will go to the public and the rest to a group of investors, including the government of Singapore and Sanford I. Weill, Citi’s former chief executive.

The conversion price of that new issue is to be 20 percent over the market price of Citi stock, but Citi refused to say over what period the market price would be calculated. The lower the price, the more dilution will be produced for existing shareholders.

That is exactly what I predict is going to happen. This will drive interest rates through the roof because money will flow into these stocks and with a deal like that why not. I am just waiting for it to happen.
 

murray stroupe

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Apr 27, 2005
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Tennessee
Re ; Renewed focus

I really don't believe Citi has written off enough. They hold derivatives that are leveraged anywhere from 25 to 1 up to 200 to 1. Essentially, these assets have no value at all; it was ate up by the loans that have no equity backing.
=================
May well be right,Randolf;
and , in the long run, giving former CEO Sanford a stake, could help.

If they have to get some more funding from foreign wealth funds, better that that US gov bailout. One of Citi's foreigh fund investor groups hired a puiblic relations firm recently.

And not to worry,they could always do like low fliers JAVA,JDSU;
reverse stock split can[seem to] turn a $5.oo stock into a $50.oo stock
 

Terrel L. Shields

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May 2, 2002
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Certified General Appraiser
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Arkansas
This will drive interest rates through the roof
We are once again in danger of stagflation. High interest rates to curb inflation and markets going no where.
 
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