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Wednesday, January 14, 2009


citi to be dismantled

via bloomberg -- but dismantled to whom? i'd wager C ends up in the arms of the government long before it can divest itself. the telegraph all but hopes for "the equivalent of the retreat from gallipoli" as vikram pandit has sold of smith barney for 10% of what it may have got just a year ago.

mish surveys the end of a banking empire, highlighted this bloomberg piece.

Time and again, big banks such as Citigroup Inc. argued that irrational and seized-up markets, not the woeful state of their balance sheets, were to blame for convulsing share prices.

For more than 18 months, the government went along with that thinking. Instead of demanding that banks recognize their losses, overhaul operations and quickly raise equity from private sources, regulators bet a flood of money would unclog credit markets.

When that didn’t work, the government doled out billions of dollars to more than 100 banks through the Troubled Assets Relief Program, or TARP, again with few demands that banks take harsh medicine. That hasn’t done the trick either.

The reason is pretty simple. This has never been a liquidity crisis. It’s a capital crisis. Namely, investors don’t think banks have enough of it, especially when it comes to tangible common equity.

Citigroup is a dramatic example. Its tangible common equity was 2.41 percent of tangible assets at the end of the third quarter. That was too low for investors’ liking and below peers such as JPMorgan Chase & Co. and Wells Fargo & Co.

that sliver of real equity is itself a fiction of level 3 accounting, to be sure. an honest appraisal of the situation of C and some of its peer group would leave them already insolvent and facing immense further losses. mish reads ben bernanke as saying exactly as much -- meaning that we are headed toward the nationalization of the bulk of the american banking system.

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