Archive for the ‘Citigroup.’ Category

U.S. Losses May Reach $3.6 Trillion; Banking System “Effectively Insolvent”

January 21, 2009

U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.

By Henry Meyer and Ayesha Daya
Bloomberg

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.

President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.

Bank of America Corp., the largest U.S. bank by assets, posted a quarterly loss of $1.79 billion last week, its first since 1991, and received $138 billion in emergency government funds. Citigroup Inc. posted an $8.29 billion fourth-quarter loss, completing its worst year, and plans to split in two under Chief Executive Officer Vikram Pandit’s plan to rebuild a capital base eroded by the credit crisis.

‘Bankrupt’ System

“The problems of Citi, Bank of America and others suggest the system is bankrupt,” Roubini said. “In Europe, it’s the same thing.”

Stocks in Europe, Canada and Brazil dropped yesterday on speculation government efforts to shore up the financial industry will fail to stem the deepening global recession. The U.K.’s Royal Bank of Scotland Group Plc said it expects to post a loss of as much as 28 billion pounds ($41 billion) for 2008 and the government got ready to raise its stake in the lender.

Oil prices will trade between $30 and $40 a barrel all year, Roubini predicted.

“I see commodities falling overall another 15-20 percent,” Roubini said. “This outlook for commodity prices is beneficial for oil importers, it’s going to imply that economic recovery might occur faster, but from the point of view of oil exporters, this will be very negative.”

Oil has tumbled 77 percent from its July high of $147.27 as the global economy sinks into recession, straining the budgets of crude exporters. Saudi Arabia, Oman and Dubai, the second- largest sheikdom in the United Arab Emirates, have said they will post budget deficits this year.

Crude oil for February delivery fell to $32.70, down 10.4 percent from last week’s close and the lowest since Dec. 19, on the New York Mercantile Exchange today. The contract traded at $33.37 a barrel at 10:45 a.m. London time.

Obama Urged to Move Swiftly to Rescue Banks

January 18, 2009

President-elect Obama’s advisors have provided few details about how they will attack the banking crisis.

The financial meltdown is the most serious to confront a new president since Franklin D. Roosevelt entered the White House in 1933.

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By Stephen Labaton
The New York Times

A growing chorus of officials and Wall Street executives have urged President-elect Barack Obama to move immediately to shore up the banking industry as its crisis deepens.

With Citigroup, Bank of America and many other large financial institutions continuing to hemorrhage billions of dollars, the central issue Mr. Obama faces is how to relieve banks of rapidly deteriorating assets.

In a speech last week at the London School of Economics, Ben S. Bernanke, the chairman of the Federal Reserve, raised three proposals that Obama transition officials are said to have been considering to cleanse the largest banks of their biggest problems. One would involve the purchase by the government of troubled assets. A second would provide guarantees and agreements to absorb some of the losses in exchange for warrants or other compensation. A third would involve the creation of “bad banks” that would buy the declining assets for cash or stock in the new entity.

Mr. Obama has vowed in generalities to move swiftly. In an interview last week on “This Week” on ABC, he said he had asked his team “to come together, come up with a set of principles around how we are going to maintain transparency, what are we going to do in terms of housing, how are we going to target small businesses that are under an enormous business crunch.”

Likewise, advisers to Mr. Obama have provided few details about how they will attack the banking crisis.

The financial meltdown is the most serious to confront a new president since Franklin D. Roosevelt entered the White House in 1933.

On March 5 of that year, a day after he became president, Roosevelt responded to the devastating string of bank failures by declaring a bank holiday that closed all banks and halted all financial transactions, allowing the start of the arduous process of restoring public confidence in the system.

None of Mr. Obama’s advisers are suggesting a bank holiday. But like Roosevelt’s move, the details of the Obama administration’s rescue efforts are expected to begin to emerge quickly after the new president takes office.

On Wednesday, the day after the inauguration, Timothy F. Geithner, the nominee for Treasury secretary, is certain to be asked about the administration’s plans at his confirmation hearing before the Senate Finance Committee.

Read the rest:
http://www.nytimes.com/2009/01/18/
us/politics/18assets.html

Auto Bailout: Practicality Trumps Ideology

December 20, 2008

With depression now a genuine risk, the U.S. has wisely put practicality ahead of idealogy.

By Steven Pearlstein The Washington Post
Saturday, December 20, 2008; Page D01

At any other time, the day that the federal government stepped in to rescue the domestic auto industry would be a turning point in the history of American capitalism. The only reason it is not is that it was immediately preceded by similar rescues of Bear Stearns, Fannie and Freddie, AIG, and Citigroup. It was just another day in Bailout Nation.

Let’s be clear on one point, however: The story here is not that Americans have lost their stomach for the kind of “creative destruction” that is generated by open and competitive markets, which sometimes results in the big companies going under and thousands of jobs being lost. We never particularly relished it — who would? — but we tolerated it in the past, we are still tolerating it now (Circuit City, Lehman Brothers), and we will undoubtedly tolerate it in the future. Moreover, even when the government steps in to rescue these companies, it invariably involves a serious and painful restructuring that results in the loss of thousands and even tens of thousands of jobs. That’s not how you define bailout in French.

Workers leave the Daimler Chrysler North Assembly Jeep plant ... 
Workers leave the Daimler Chrysler North Assembly Jeep plant in Toledo,Ohio after their shift Friday, Dec. 19, 2008. Autoworkers took home an early holiday gift Friday with President Bush’s offer of $17.4 billion in emergency loans to beleaguered U.S. car makers.(AP Photo/Madalyn Ruggiero)

Read the rest:
http://www.washingtonpost.com/wp-dyn/conte
nt/article/2008/12/19/AR2008121903170.ht
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