C - Citibank

[PlanMaestro]

I recognize that people are worried over what's becoming of the net interest margins in the US banks, but does that really affect the margin earned in Latin America and Asia where they make more than 1/2 of their profit?

 

No

[Junto]

@Gatorcapital is digging deep: http://bit.ly/n3V827

 

First of three part series.

[tombgrt]

Up 38% from its low.  :o

 

Was going to pick some up besides my BAC position but I might just missed the chance. It's a crazy deal even right now but I would have to sell FFH or BRK and I just don't like giving that up in the current environment.

[ERICOPOLY]

I was just looking at page 10 of their Q3 presentation tonight (http://www.citigroup.com/citi/fin/data/p111017a.pdf?ieNocache=799).

 

The slide breaks down their Asia consumer loans -- 40% mortgages.

 

Interesting (to me) is that their largest Asia markets are Korea, Singapore, and Hong Kong.

 

Apparently loan-to-value ratios for mortgages are capped by regulations at these levels:

Korea          60%

Singapore    80%

Hong Kong  50%-70%

 

Mortgages in these markets are full recourse. 

 

The thing that struck me as funny is this bias that I get from the media that all things emerging markets are inherently risky.  I don't believe we have any regulations whatsoever on LTVs in the USA, let alone Korea's 60%.

 

 

[MrB]

I was just looking at page 10 of their Q3 presentation tonight (http://www.citigroup.com/citi/fin/data/p111017a.pdf?ieNocache=799).

 

The slide breaks down their Asia consumer loans -- 40% mortgages.

 

Interesting (to me) is that their largest Asia markets are Korea, Singapore, and Hong Kong.

 

Apparently loan-to-value ratios for mortgages are capped by regulations at these levels:

Korea          60%

Singapore    80%

Hong Kong  50%-70%

 

Mortgages in these markets are full recourse. 

 

The thing that struck me as funny is this bias that I get from the media that all things emerging markets are inherently risky.  I don't believe we have any regulations whatsoever on LTVs in the USA, let alone Korea's 60%.

 

 

 

What about Aus? 10% of loans. When I read what folks like Steve Keen http://www.debtdeflation.com/blogs/ says then that 10% might turn out to be pretty big. What do you make of it?

[sswan11]

Tilson likes C and GS, but not BAC:

 

http://www.forbes.com/sites/steveforbes/2011/11/30/steve-forbes-interview-whitney-tilson-hedge-fund-manager-part-1/3/

[tombgrt]

Yet he holds a weird 0,2% position in BAC. What's the use in that?

 

As an aside:

Tilson: Well, as you mentioned, we’re value investors. We call ourselves “opportunistic value investors.”  There are a lot of different styles and flavors. But at the end of the day we’re just trying to buy 50 cent dollars and short $5 dollars, I’d say.

 

Oh please, seriously? After the netflix fiasco? Really?

 

Where was his MoS shorting it at $150-180 (maybe lower?), covering at double that and then going long around $80? Even if he thought Netflix was "only" overvalued at twice IV, he would have zero MoS when going long in October. Especially since the business has been detoriating. Where does his "trying to buy 50 cent dollars and short $5 dollars" fit in? Very amusing tho.

 

 

 

I took a position in C a couple of weeks ago btw.

[ERICOPOLY]

I was just looking at page 10 of their Q3 presentation tonight (http://www.citigroup.com/citi/fin/data/p111017a.pdf?ieNocache=799).

 

The slide breaks down their Asia consumer loans -- 40% mortgages.

 

Interesting (to me) is that their largest Asia markets are Korea, Singapore, and Hong Kong.

 

Apparently loan-to-value ratios for mortgages are capped by regulations at these levels:

Korea          60%

Singapore    80%

Hong Kong  50%-70%

 

Mortgages in these markets are full recourse. 

 

The thing that struck me as funny is this bias that I get from the media that all things emerging markets are inherently risky.  I don't believe we have any regulations whatsoever on LTVs in the USA, let alone Korea's 60%.

 

 

 

What about Aus? 10% of loans. When I read what folks like Steve Keen http://www.debtdeflation.com/blogs/ says then that 10% might turn out to be pretty big. What do you make of it?

 

 

Australia is 10% of the $126.4 billion portfolio.

 

The portfolio is 30% mortgage.

 

So you are talking maybe 30% of $12.6 billion exposed to Aussie real estate mortgages.

 

$4b or so approximately.

 

If 10% default with recovery of 50%, we're looking at a loss of $200m.

 

[twacowfca]

Yet he holds a weird 0,2% position in BAC. What's the use in that?

 

As an aside:

Tilson: Well, as you mentioned, we’re value investors. We call ourselves “opportunistic value investors.”  There are a lot of different styles and flavors. But at the end of the day we’re just trying to buy 50 cent dollars and short $5 dollars, I’d say.

 

Oh please, seriously? After the netflix fiasco? Really?

 

Where was his MoS shorting it at $150-180 (maybe lower?), covering at double that and then going long around $80? Even if he thought Netflix was "only" overvalued at twice IV, he would have zero MoS when going long in October. Especially since the business has been detoriating. Where does his "trying to buy 50 cent dollars and short $5 dollars" fit in? Very amusing tho.

 

 

 

I took a position in C a couple of weeks ago btw.

 

You have to realize that W. is Mr. Outside and G. Is Mr. Inside who calls the shots on their trading.  G. is a nice guy, but we have no idea how much pressure a fund manager may be under at times, especially when the market is going against him.

[ERICOPOLY]

It's interesting that people think it will take 5 years for Citi to pay a full dividend.

 

 

Going forward, we have three sources of capital generation, as we expect our core Citicorp franchise to generate earnings in excess of the capital needs to grow that business. In addition, we have unique additional sources of capital, both in the wind-down of Citi Holdings, as well as the monetization of our deferred tax asset. Only $11 billion of our $50 billion in DTA is currently included in Tier 1 common. We can grow our capital by utilizing our DTA and reducing that disallowed amount. Additionally, a significant portion of our regulatory capital is supporting risk-weighted assets in Citi Holdings. And, as I mentioned earlier, adjusted for the transfer of Retail Partner Cards into Citicorp, roughly 22% of our risk-weighted assets are in Citi Holdings, and therefore about $25 billion of our Basel I regulatory capital should be eventually released as Citi Holdings winds down. Or, put another way, between $39 billion of disallowed DTA and another $25 billion of capital supporting Holdings, there’s nearly $65 billion of capital, supporting either wind-down portfolios, or simply unleverageable, because it is excluded from our regulatory capital. And so, it shouldn’t come as a surprise that I’m excited about the prospects of delivering this excess capital back to our shareholders over time.

 

- Pandit, page 5

 

http://www.citigroup.com/citi/fin/data/tr111206a.pdf?ieNocache=105

 

 

 

 

[tombgrt]

I guess US bank stocks have to drop substantially more now than their Europese counterparts as (among other things) the risk for contagion is much lower and their T1C is a lot higher. Makes perfect sense. Bought more C today.

 

 

 

You have to realize that W. is Mr. Outside and G. Is Mr. Inside who calls the shots on their trading.  G. is a nice guy, but we have no idea how much pressure a fund manager may be under at times, especially when the market is going against him.

 

Fair point.

[ERICOPOLY]

Pandit is sounding very upbeat about the new Fed stress test.  Apparently the stress scenario is for 4%-6% emerging markets growth.  A large part of Citi's loan book is tied to emerging markets.

 

http://www.citigroup.com/citi/fin/data/tr111206a.pdf?ieNocache=371

 

VIKRAM PANDIT: Yeah. So let me start by saying, I think transparency is a good thing. We are in favor of putting out information exactly of that sort so you get to see what that information suggests. And we’ve actually gone one step further to say, you know, these stress tests are not necessarily comparable. And why don’t we even have a benchmark portfolio where everybody stress tests a given benchmark portfolio, so not only can we put out our stress tests, but then you get everybody to put a stress test out against this benchmark so that you can actually compare apples to apples. So we’re in favor of this kind of disclosure. I think the banking system, Richard, in general, is in much better shape than it was the last time the Fed went through this exercise. So in general, I think the banking system is going to look – it’s going to do fine through this particular stress test. For us, we have 11.7% Tier 1 common. When you look at the details of the stress test - and you not only have to look at the detail of the stress test, but you’ve got to array it against their assumptions - we have a large emerging market portfolio. They think, in a stress, that the emerging market grows at 4%-6%. We have a smaller mortgage portfolio, which is reflective of some of the stresses here in the U.S. they want, and so, you know, I think we haven’t done the work – we’ve started doing the work – but we’re happy with being able to publish those numbers and sharing what those numbers say with everybody.

[ERICOPOLY]

Interesting comment from Pandit regarding CitiHoldings.

 

The unit (including the toxic Special Asset Pool) has been profitable across all of 2010 and 2011 if you exclude the mortgage portfolio (which is their entire US mortgage portfolio, inclusive of home equity loans):

 

 

Losses in Citi Holdings have been predominantly driven by the Local Consumer Lending segment, whose largest asset is the legacy U.S. mortgage portfolio. If you exclude Local Consumer Lending, pre-tax income for the rest of Citi Holdings was positive for 2010 and thus far in 2011 as well. And within Local Consumer Lending, pre-tax losses in these periods were driven primarily by U.S. mortgages, as shown here on the right.

 

- Pandit, 12/6/11

 

quote taken from page 2:

 

http://www.citigroup.com/citi/fin/data/tr111206a.pdf?ieNocache=478

 

 

 

[PlanMaestro]

Interesting comment from Pandit regarding CitiHoldings.

 

The unit (including the toxic Special Asset Pool) has been profitable across all of 2010 and 2011 if you exclude the mortgage portfolio (which is their entire US mortgage portfolio, inclusive of home equity loans):

 

 

Losses in Citi Holdings have been predominantly driven by the Local Consumer Lending segment, whose largest asset is the legacy U.S. mortgage portfolio. If you exclude Local Consumer Lending, pre-tax income for the rest of Citi Holdings was positive for 2010 and thus far in 2011 as well. And within Local Consumer Lending, pre-tax losses in these periods were driven primarily by U.S. mortgages, as shown here on the right.

 

- Pandit, 12/6/11

 

quote taken from page 2:

 

http://www.citigroup.com/citi/fin/data/tr111206a.pdf?ieNocache=478

 

Same as BAC, mortgages is the only division showing loses.

[BargainValueHunter]

B Warrants have nosedived...

http://www.nasdaq.com/symbol/c-ws-b

 

They were down ~20%, now down ~8%

 

Common is up, though...

 

http://www.nasdaq.com/symbol/c

 

Strange...

[BargainValueHunter]

http://www.newsmax.com/DavidFrazier/Citigroup-big-returns-C/2011/12/22/id/421920

 

Separately, the company improved its financial condition substantially over that two-year period, with its Tier 1 Capital Ratio rising to 11.7 percent during the year ended Dec. 31, 2009, from 7.1 percent at the end of 2007. That’s a substantial improvement, considering the fact that U.S. bank regulators require commercial banks to have a Tier 1 Capital Ratio of just 4 percent.

 

Those same regulators consider banks that have a Tier 1 capital ratio equal to or greater than 6 percent to be well-capitalized. Tier 1 Capital Ratios are computed by dividing a bank’s shareholders' equity by the bank’s primary assets, such as its total loans outstanding.

 

Citigroup also made substantial improvements to its short-term liquidity during that period by lengthening the maturity structure of its liabilities, increasing its balances of cash and highly liquid securities, and growing its deposit base, as well as by raising substantial amounts of equity capital. As a result of those improvements, the company’s structural liquidity, which is defined as deposits, long-term debt and equity as a percentage of a bank’s total assets, grew to 73 percent at the end of 2009 from 63 percent at the end of 2007.

[PlanMaestro]

Those same regulators consider banks that have a Tier 1 capital ratio equal to or greater than 6 percent to be well-capitalized. Tier 1 Capital Ratios are computed by dividing a bank’s shareholders' equity by the bank’s primary assets, such as its total loans outstanding.

 

Most large banks have Tier 1s of this magnitude. They are well over-capitalized and probably over-reserved. The investor's risk are the regulators.

[alertmeipp]

Those same regulators consider banks that have a Tier 1 capital ratio equal to or greater than 6 percent to be well-capitalized. Tier 1 Capital Ratios are computed by dividing a bank’s shareholders' equity by the bank’s primary assets, such as its total loans outstanding.

 

Most large banks have Tier 1s of this magnitude. They are well over-capitalized and probably over-reserved. The investor's risk are the regulators.

 

Consider the commons of many big banks now trade below book, the banks will have very hard time issuing equity when another crisis hit (shareholders will be diluted heavily(. Take C for example, big difference if they would issue equity at 1.3x book vs 0.5 book.

[PlanMaestro]

Does anyone have links to the prospectus (sic?) of both warrants ?

 

I am taking a second look to both Citi warrants.  I have conflicting information on the strike price and div adjustment. The implied volatility (just to estimate the mispricing) has been going down.

[redskin]

Prospectus on Citi warrants....

 

http://www.sec.gov/Archives/edgar/data/831001/000095012311005624/y89178b5e424b5.htm

 

http://www.sec.gov/Archives/edgar/data/831001/000095012311005619/y89177b5e424b5.htm

[PlanMaestro]

Prospectus on Citi warrants....

 

http://www.sec.gov/Archives/edgar/data/831001/000095012311005624/y89178b5e424b5.htm

 

http://www.sec.gov/Archives/edgar/data/831001/000095012311005619/y89177b5e424b5.htm

 

Much appreciated

[ERICOPOLY]

Pandit pushes for more transparency:

 

The chief executive of Citigroup has said banks should be forced to publicise how they measure risk so that investors can “punish” institutions that are too optimistic about the quality of their assets.

 

http://www.ft.com/intl/cms/s/0/35fefc26-3b99-11e1-bb39-00144feabdc0.html#axzz1j5de6qJv

 

 

[PlanMaestro]

Pandit pushes for more transparency:

 

The chief executive of Citigroup has said banks should be forced to publicise how they measure risk so that investors can “punish” institutions that are too optimistic about the quality of their assets.

 

http://www.ft.com/intl/cms/s/0/35fefc26-3b99-11e1-bb39-00144feabdc0.html#axzz1j5de6qJv

 

mmmm... and who is the target besides Pandit trying to make Citi look good? This looks like retaliation to the European banks for all the Basel III non-sense. Who cares about RWA when we  have the TCE ratio and common sense?

 

 

[PlanMaestro]

Citigroup and a potential Smith Barney hit

 

http://online.wsj.com/article/SB10001424052970204131004577237363070975608.html

[vinod1]

Citigroup and a potential Smith Barney hit

 

http://online.wsj.com/article/SB10001424052970204131004577237363070975608.html

 

Now I understand why C is not disclosing the carrying value for MSSB unit on their FS. I was looking for this value and there have been direct questions on conf calls and response has been that they wont answer that question. I thought it is weird.

 

Vinod