Comments »American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.
AIG Headquarters
Sources close to the company [ Loading… () ] said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.
That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn’t have.
In addition, if AIG’s book value falls below a certain level, as it seems certain to do, it will trigger default in certain of its debt instruments, say people familiar with the situation.
All of this adds up to a huge headache for the Federal Reserve and Treasury, which have already provided over $150 billion of assistance to AIG.
Joined Feb 3, 2009
1,759 Blog Posts
Mid Day Update
Investors are selling first and waiting to see what will happen. Markets erase any opening hope trade on the C news.
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NCX, WHI, SRT, JRT, JMP, ABN.p, RBS.p, PYA, STI.p
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TOFC, AANB, GOODO, ANGN, EMMSP, ACFC, CSBC, CECE, FPFC, EURX
NYSE Percentage Losers
HS, HUM, BAC, PKJ, FBP.p, PL.p, XKE, XI, DCO
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BBXT, BPOPO, CARV, HPCCP, CFFC, BPOPM, ASBI, BPOPP, CWBC, FBMI
Unusual Volume
GRMN, GEOY, TRLG, CECO, NILE
PPT
Top 10 Ranked Stocks
All Ranked Stocks
Rank Symbol Hybrid Hyb. Chg. (Daily) Hyb. Chg. (Weekly)
1 CECO 4.36 +3.81% +37.11%
2 ORLY 4.19 +2.7% +47.18%
3 AZO 4 +4.17% +49.25%
4 EGO 3.98 -3.86% -7.1%
5 SNDA 3.94 +10.99% +30.9%
6 ODSY 3.85 -8.98% +21.07%
7 ORH 3.8 +11.11% +2.16%
8 WPI 3.79 -1.81% +22.36%
9 COGT 3.77 +28.67% +33.69%
10 OCN 3.76 +8.67% +13.98%
Bottom 10 Ranked Stocks
All Ranked Stocks
Rank Symbol Hybrid Hyb. Chg. (Daily) Hyb. Chg. (Weekly)
1 ELN 1.15 +16.16% +41.98%
2 OZM 1.25 +4.17% +14.68%
3 IPCS 1.31 -12.08% +2.13%
4 SUI 1.31 +13.91% +28.7%
5 PACW 1.32 +13.79% +39.36%
6 GLBC 1.33 -6.99% -29.03%
7 CADX 1.34 -15.19% 0%
8 CPTS 1.35 -21.97% +11.67%
9 CDZI 1.35 -17.68% -4.93%
10 BSY 1.36 -16.56% -10.53%
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All Ranked Industries
Rank Industry Hybrid Hyb. Chg. (Daily)
1 Auto Parts Stores 3.59 +14.51%
2 Drugs – Generic 3.29 -2.32%
3 Home Health Care 2.91 +0.13%
4 Drug Stores 2.91 +2.17%
5 Consumer Services 2.91 -6.38%
6 Education & Training Services 2.86 -0.71%
7 Healthcare Information Services 2.81 -4.30%
8 Major Integrated Oil & Gas 2.79 -2.61%
9 Technical Services 2.79 +3.41%
10 Sporting Activities 2.76 +11.77%
Bottom 10 Ranked Industries
All Ranked Industries
Rank Industry Hybrid Hyb. Chg. (Daily)
1 Semiconductor- Memory Chips 1.82 +9.21%
2 Real Estate Development 1.93 +4.38%
3 Residential Construction 1.94 +4.45%
4 Lumber, Wood Production 1.95 +3.32%
5 Publishing – Newspapers 1.97 +3.68%
6 Office Supplies 1.99 +5.11%
7 Major Airlines 2.00 +12.94%
8 Biotechnology 2.01 +1.61%
9 Recreational Vehicles 2.01 +4.22%
10 Textile Industrial 2.01 +4.36%
Top 10 ETFs
Rank Symbol Technical Score
1 GLD 3.55
2 GOE 3.55
3 CYB 3.53
4 BOS 3.53
5 SDK 3.53
6 SKK 3.50
7 DXD 3.48
8 MZZ 3.48
9 RWM 3.48
10 SHV 3.43
Bottom 10 ETFs
Rank Symbol Technical Score
1 GAZ 0.69
2 IYT 0.74
3 XSD 0.74
4 UNG 0.78
5 RJZ 0.78
6 IWC 0.79
7 IWZ 0.79
8 IYW 0.79
9 JKE 0.79
10 MGC 0.79
Robert J. Shiller Pod Cast on Evaluations and the Stock Market
The Government Reiterates a Reiteration That it Reiterated After Reiterating…Which Keeps Futures Strong Into the Open
The Government Reiterates a Reiteration That it Reiterated After Reiterating
Comments »WASHINGTON (Reuters) – U.S. banking regulators on Monday pledged to provide more capital to banks as needed and keep large institutions viable through a new capital assessment program to be launched on Wednesday.
“The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses,” the regulators said in a statement issued by the U.S. Treasury that named no individual banks.
“The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth,” the regulators said. “Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.”
The program to be launched on Wednesday — the Capital Assistance Program — was announced on February 10 by U.S. Treasury Secretary Timothy Geithner as part of a larger bank rescue plan that will include the creation of a public-private partnership to mop up toxic assets on bank books.
Under the Capital Assistance Program, regulators will conduct “stress tests” to evaluate the potential capital needs of major U.S. banks should the economy perform more poorly than expected.
“Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital,” the regulators said. “Otherwise, the temporary capital buffer will be made available from the government.
The announcement followed a report on Sunday night that Citigroup (NYSE:C – News) was in talks on the U.S. government taking a bigger stake in the bank. The Wall Street Journal said taxpayers could end up owning as much as 40 percent of the ailing lender’s common stock. The announcement did not mention Citigroup or any other institution.
Any government capital under the new program will come in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks well capitalized, the regulators said. These can be retired before conversion if conditions improve.
Banks that previously received preferred stock capital injections under the Troubled Asset Relief Program can exchange these shares for the mandatory convertible preferred stock, “to enhance the quality of their capital.”
The regulators stressed, however, that major institutions currently have more than enough capital to be considered well capitalized.
The Capital Assistance Program aims to ensure that they have sufficient capital to support economic recovery, even if conditions worsen.
“Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands,” the regulators said.
In addition to the Treasury, these regulators include the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
Market Movers
THE PPT IS HERE !!! !!! !!!! !!! !!! !!!! !!! !!! MARKETS TAKE NOTICE AND FUTURES TURN
Feb. 23 (Bloomberg) — Asian stocks rose, led by technology and finance companies, on speculation the U.S. government will raise its stake in Citigroup Inc. to ease the global financial crisis and revive economic growth.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, gained 0.7 percent in Tokyo after the Wall Street Journal reported that the U.S. may take a stake of as much as 40 percent of Citigroup’s common stock. Samsung Electronics Co., the world’s largest memory-chip maker, gained 2.7 percent in Seoul. BlueScope, Australia’s largest steelmaker, tumbled 7.7 percent after saying it may have a loss this half.
The MSCI Asia Pacific Index gained 1.1 percent to 76.86 at 11:46 a.m. in Tokyo, having earlier fallen 1.1 percent. The gauge lost 14 percent this year as the worsening economic slowdown hurt corporate profits.
Japan’s Nikkei 225 Stock Average lost 0.2 percent to 7,398.84. Toshiba Corp., Japan’s biggest chipmaker, slumped 7.8 percent after the Yomiuri newspaper reported the company is considering raising funds to strengthen its finances. Australia’s S&P/ASX 200 Index fell 1.3 percent.
Futures on the U.S. Standard & Poor’s 500 Index rallied 1.2 percent today following the Citigroup report. The gauge dropped 1.1 percent on Feb. 20. Citigroup Inc. and Bank of America Corp. tumbled as Senator Christopher Dodd, chairman of the Banking Committee, said it may be necessary to nationalize some banks for “a short time.”
Comments »Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.
While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock. Bank executives hope the stake will be closer to 25%, these people said.
Any such move would give federal officials far greater influence over one of the world’s largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn’t indicated if it supports the plan, according to people with knowledge of the talks.
When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.
The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis. Last week, Citigroup’s share price fell below $2 to an 18-year low. Bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide.
Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.
The move wouldn’t cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements.
Bank of America Corp. said Sunday that it isn’t discussing a larger ownership stake for the government. “There are no talks right now over that issue,” said Bank of America spokesman Robert Stickler. “We see no reason to do that. We believe the goal of public policy should be to attract private capital into the bank, not to discourage it.”
Shareholders’ FearsCitigroup’s low share price already reflects, at least in part, a fear among shareholders that their stakes might be further diluted. A government move to take a big stake could backfire, potentially spurring investors to flee other banks, even healthier ones.
There’s no universal agreement on what constitutes nationalization of a bank. In the U.K., the government already owns 43% of Lloyds Banking Group PLC, and last week moved to increase its ownership of Royal Bank of Scotland Group PLC to 70% from 58%. Those two banks have been classified as “public-sector entities,” and as much as £1.5 trillion ($2.136 trillion) of their liabilities have been moved over to the country’s balance sheet.
The White House has knocked down recent speculation that the government is preparing to nationalize several large U.S. banks.
The U.S.’s intentions with Citigroup remain unclear. For instance, it’s not yet known whether the government would seek a stronger hand in the New York company’s management or day-to-day operations.
As part of the plan, Citigroup officials hope to persuade private investors that have bought preferred shares — such as the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority — to follow the government’s lead in converting some of those stakes into common stock, according to people familiar with the matter. That would further bolster an obscure but increasingly pivotal measure of banks’ capital known as “tangible common equity,” or TCE.
The TCE measurement, one of several gauges of a bank’s financial strength, gives weight to common shares — thus the interest in converting preferred shares to common stock.
Details of the rescue remain in flux. Key questions, such as the price at which the government will convert its preferred stock into common shares, haven’t been resolved.
And it’s possible that other options will emerge to stabilize the company. For example, the Obama administration could decide to sit tight until the results of several new “stress tests” on major banks — broad examinations of financial health now being mandated — are known in a couple months, one official said.
If the deal gets nailed down, it will be Washington’s third effort to aid Citigroup since last fall. In October, the Treasury Department put a total of $125 billion into eight giant financial institutions, including $25 billion to Citigroup, in exchange for preferred shares and warrants to buy stock.
Then, shortly before Thanksgiving, the government agreed to infuse another $20 billion into Citigroup as its stock tumbled. It also agreed to protect the banking company against most losses on a $301 billion pool of assets.
Among the question marks looming over the current discussions is the future of Citigroup Chief Executive Vikram Pandit and the company’s board.
Pandit’s FutureIn November, as part of the sweeping rescue, federal officials privately discussed the possibility of replacing Mr. Pandit, who became CEO in December 2007. But the government decided not to remove him, in large part due to a dearth of qualified replacements. Still, top government officials warned Mr. Pandit that a third trip to the taxpayer trough would probably cost him his job.
However, since the latest talks don’t involve the possibility of Citigroup receiving additional government capital, it isn’t clear whether Mr. Pandit’s job is on the line. A Citigroup spokeswoman declined to comment.
Federal officials have been pushing Citigroup executives and the board’s lead independent director, Richard Parsons, to shake up the 15-member board. Already, three directors, including former Treasury Secretary Robert Rubin, have announced plans to step down this spring.
There are at least two catalysts for the recent talks with the government.
First, Citigroup’s shares have fallen to historic lows. That doesn’t pose a direct threat to the company’s stability. But if it spooks customers into pulling their business, that could push the bank toward a dangerous downward spiral.
Second, bank regulators this week will start performing their battery of stress tests at the nation’s largest banks as part of the Obama administration’s industry-bailout plan. As part of those tests, the Federal Reserve is expected to dwell on the TCE measurement as a gauge of bank health, according to people familiar with the matter.
The crisis is triggering a deep re-examination of the way bank health is measured in the U.S. financial system. This complex exercise boils down to calculating various ratios of capital to a bank’s total assets.
Until recently, TCE — essentially a gauge of what common shareholders would get if an institution were dissolved — has been one of the less prominent ways to measure a bank’s vigor. TCE is also among the most conservative measures of financial health.
Bankers and regulators generally prefer to use what is known as “Tier 1” ratio of a bank’s capital adequacy. It takes into account equity other than common stock. By Tier 1 measurements, most big banks, including Citigroup, appear healthy. Citigroup’s Tier 1 ratio is 11.8%, well above the level needed to be classified as well-capitalized.
By contrast, most banks’ TCE ratios indicate severe weakness. Citigroup’s TCE ratio stood at about 1.5% of assets at Dec. 31, well below the 3% level that investors regard as safe.
The regulators’ new focus on TCE represents an important shift. The government’s recent injections into hundreds of institutions were predicated on the idea that Tier 1 was key. Because the investments weren’t in the form of common stock, they didn’t affect the companies’ TCE ratios.
