meeny's Blog

Wall Street on Tuesday, unleashing a breathtaking scholarship Rally investors that left a little dizzy, but had many experts warning that the rally, as before being so many, could falter as fast as it started .
After months of demoralizing losses, investors finally have an idea of what they so desperately craved - a glimmer of good news in the financial industry - from none other than Citigroup, the largest and most troubled of the nation’s troubled large banks.
In a memorandum sent to Citigroup employees on Monday night, Vikram S. schoolteacher, Citigroup’s beleaguered executive, said that after more than a year of loss location and three rescues from Washington, the giant financial company was again , to make money. Citigroup, he said, was on track for its strongest quarter since late 2007, when waves of bad loans and trading losses began to crash down the company. But some analysts saw it at the end of problems at Citigroup and other financial companies. Indeed, many predicted that Citigroup and other banks will suffer further losses as the recession deepened. Given the precarious state of the global economy, even optimists have been reluctant to call an end to bear market.
“We are poor investors, we do not need much to make us happy, I was beaten so hard,” said Ed Yardeni, president of Yardeni Research. “At this point, we’ll take what we get.”

So, for a day at least a hint of good news was enough. The Dow Jones industrial average rose 379.44 points, or 5.8 percent, to 6926.49, the largest one-day gain in this year and the biggest since World War II. The broader Standard & Poor’s 500 Index of stocks rose 43.07 points, or 6.37 percent, to 719.60, the Nasdaq composite index rose 89.64 points, or 7.07 percent, to 1358.28.

Battered financial shares pace of earnings. Citigroup share price, in short, which sank below $ 1 last week, rose 40 cents, to $ 1.45. Other banks big and small post similar gains.

But the gate insisted that despite Rally, nothing really changed. Investors’ hopes, the skeptics argued, were displaced. Since last October, the Dow has five stages of the biggest one-day rallies in postwar history, only to falter again and sink to new lows .

Even after Tuesday gains, the Dow and S. & P. 500 were down more than 20 percent this year, and shares of financial companies were more than 40 percent lower.

But for traders, to the green screens offered a welcome relief from the relentless torrent of red as stocks churned steadily lower from last month, long-term financial markets to their most low levels of about 12 years.

“Volatility breeds a lot of nervousness, and nervousness breeds opportunity,” said Anthony Conroy, head equity trader at BNY ConvergEx Group. “It was a way to trade for so long, and it seems that we’re turning here.

Federal Reserve chairman, Ben S. Bernanke, added to the optimism of the day call for broader reforms in the financial regulatory system, including a review of accounting rules governing how companies value their assets.

Mr. Bernanke, speaking to the Council on Foreign Relations, said he did not support suspending mark-to-market accounting rules, in which the asset values peg at current market prices. But he said he supported a review to ensure that weaknesses in the rules, have been identified and fixed.

“In addition to revising the accounting standards governing the assessment and loss provisioning would be useful and could lead to changes in accounting rules,” he said in his speech.

Investors also cheered signals to lawmakers and the Securities and Exchange Commission officials were poised to restore the uptick rule, which is intended to slow the short-selling. The rule was lifted in 2007, and critics have said her absence has contributed to the breathtaking pace of declines in the prices of shares.

But the main catalyst was the news from Citigroup, which, with high investment and banking operations in more than 100 countries, is viewed as a proxy for the broader banking industry. Mr. schoolteacher in his memory, which took place a few rays of hope.

“I, like you, am disappointed with the current price range of basic and misperceptions about our financial position,” said Mr schoolteacher. But Citigroup, he said, was financially sound, its strong business and relatively stable deposits.

“Over time, markets will recognize the many strengths of Citi,” said Mr schoolteacher.

For Citigroup, a major question is whether it can generate sufficient revenues to resist expected losses in November. Citigroup could still support 55.5 billion dollars in additional markdowns in the next 18 months, according to a recent analysis CreditSights.

In memory of Mr. schoolteacher reported that Citigroup could absorb these losses. He said the bank was profitable in January and February, when it generated a combined 19 billion dollars in revenue due to strong trading results and fatter margins credit.

Many analysts were skeptical. Citigroup profits could be temporary if the global economy worsens substantially.

“Citi is not the forest. It is certainly good news that Citi is profitable, but I would not overplay the point.” Said Michael Mayo, financial services, an analyst at Deutsche Bank. “They still write-downs and an increase in problem assets, and they are still dependent on the regulatory authorities on what they do.”

Indeed, regulators are currently conducting “stress tests” for Citigroup and 18 other major banks to assess the depths of their problems, and while Mr teacher said he was confident that Citigroup was adequately capitalized Many analysts question whether the company will need a government rescue. Also hanging in the balance is whether a plan to be supported by government investment funds to buy up toxic assets from banks can obtain from the ground.

But, given the steep decline of late, it does not entirely surprising to see stocks rebound sharply, if only for a short period of time.

“When stocks have been battered as much as they have not so much to take good news to move them forward,” said Marc Stern, chief investment officer at Bessemer Trust. “This is not a green light for investors, but the tone is much more constructive now.”

As investors surged back into stocks, gold prices retreated to a mere $ 900 an oz and the price certainly have Treasury debt fell again as the 10-year yield has risen from 3 percent grade.

Following are results of Tuesday’s Treasury auction for four weeks and 52 weeks of bills and notes for three years

In the most daring yet twice daily to stabilize Citigroup, one of the nation’s largest and most troubled financial institutions, Treasury Department announced Friday that it will really increase its ownership of the fight.
After two multibillion-dollar rope failed to shore up Citigroup, the government will increase the stake to 36 percent from 8 percent.
Chief Executive Vikram S. teacher, will remain, but Citigroup will shake his board so that it has a majority of new independent directors, a move that federal regulators have been pursuing. The announcement comes as the bank said its 2008 loss had spiraled to 27.7 billion dollars, among the largest in corporate history. Under the deal, the Treasury Department has agreed to convert up to 25 billion U.S. dollars of investments in preferred shares in Citigroup common stock, the taxpayers more risk but more potential for profit if the company recovers.
Treasury will convert its stake to the extent that Citigroup could convince private investors, including more public funds for investments to come along. Treasury will match private investors’ conversions to U.S. dollars U.S. dollars, and do so at the most favorable price and conditions offered to any private investor.

The plan was intended to reassure markets and stabilize Citigroup, but full of uncertainty remains. Each rescue has made more sound financial Citigroup, but his actions - a crucial sign of confidence in the company - continue to tumble. Shares were 36 percent, to $ 1.57 on Friday afternoon, and analysts who worry regulators are in crisis options.

Unlike other troubled banks, Citigroup may be both too big to fail and too ponderous for the government takeover. State is also politically unpalatable. Instead, analysts say Citigroup may be forced to reduce and further, the taxpayer may request support for a return to health. In other words, the ailing financial giant to just move ahead.

Mr teacher described instead as “a bridge to profitability,” which was intended to appease the markets. In a conference call with investors Friday morning, he was employed by the bank to its remaining businesses and strategy. Mr teacher also tried to squelch concerns that the government could play a more influential role at the company. “Citi will run for shareholders,” he added.

Inside Citigroup, bankers and traders are already buzzing about what life could be like if the government deepens its involvement. Investors are also worried that Citigroup’s performance will suffer.

Obama administration deliberately stopped short of providing a majority control or interest in Citigroup, but will probably under intense pressure to take a greater role in shaping the direction of bank.

Taxpayers, pumping, after more than 45 billion dollars in the bank, Citigroup became the single largest shareholder. Government will not put any additional money, but some analysts believe that Citigroup may need more on the way.

Moving is one of the most drastic measures, federal officials have taken to prevent systemic collapse of a critical institution. Also, the Government took a large ownership stake in American International Group, and seized control of mortgage lending giants Fannie Mae and Freddie Mac in September. So far, not one of these deals have proved good.

Obama administration tried to keep the banks in private hands and tried to stamp out talk of nationalization. But Citigroup shares plunging to its price and deteriorating financial condition made it almost inevitable, the government should transform its stake.

Understanding is expected to serve as a model for other financial institutions. Other large banks could be found in a position similar to where a new “stress test” shows they need more capital to cope with worsening losses. Administration officials say the government will convert the existing preferred stock investment in shares and, if necessary, make additional investment to stabilize the banks.

Citigroup has been pursuing similar plans with preferred shareholders, several foreign governments, including investment funds. Bank has offered to exchange up to 27.5 billion U.S. dollars of preferred stock into shares at a price of $ 3.25 a hand, a premium of 32 percent over Thursday close. Will be issuing warrants. If the transaction is not approved by the shareholders of Citigroup, those values will take a 9 percent dividend that will increase quarterly.

Friday, the bank announced that the government of Singapore, Prince Walid bin Talal of Saudi Arabia and Capital Research Global Investors and Capital World Investors should participate in the conversion rate.

While Citigroup executives hope the government’s additional support bolsters investor confidence, the conversion also released a several billion a year for capital, because the bank no longer have to pay a dividend to preferred shareholders.

In addition, attempts to address the potential shortfall of common stock, which will allow the bank to absorb losses more quickly. Citigroup executives say they believe they have sufficient stocks of capital to ensure the bank is sound.

But the thing is confirmation that they have not reached most of the quality, equity investors, who now demand. Regulations have increased also concerned that a stock price decrease may signal bank weakness, which makes it more difficult to raise capital and finance its lending.

Citigroup said that the deposits were from about 2 percent of the normal season, and executives say they have seen little sign of customers and trading partners to withdraw from business. In fact, January was a record for the month of Citigroup’s investment bank, its performance has leveled off in February, but it remains strong, according to people informed of the results.

However, the drumbeat of bad news continues. Friday, Citigroup announced that it would take a noncash charge of about 9.6 billion U.S. dollars by lowering the value of its consumer banking franchise in North America, Latin America and Europe to lower global economy.

It also booked a $ 374 million pretax charge in a tacit acknowledgment that in addition to Nikko Asset Management, a Japanese brokerage firm bought it at the beginning of 2007. That brings to Citigroup losses in 2008 to 27.7 billion dollars, had previously reported a loss of nearly 20 billion dollars.

In addition, the understanding will severely dilute existing shareholders of Citigroup, which currently owns 26 percent of the bank’s outstanding shares. These include longtime investors like Sanford I. Weill, its former chairman, and several large asset management and pension funds that manage money for ordinary investors. Citigroup employees are also major shareholders.

However, few banks to underlying problem: Citigroup may not have the power to earnings since the tsunami of consumer losses expected in the next few quarters. That is because tens of billions of toxic mortgage-related assets on the balance sheet remains blocked. Until they are eliminated, some private investors may be willing to pour new capital in the bank.

Future U.S. auto industry is getting off to a slow start.
Department of Energy for 25 billion dollars to make loans to hasten the arrival of the next generation of automotive technology - electric powered cars. But no money has been allocated so far, although advanced technology vehicles Products Loan program, established in 2007, has received requests from 75 companies, including start-ups and the three Detroit automakers.
With General Motors and Chrysler making repeat visits to Washington to ask for bailout money to stave off insolvency, some members of Congress began to wonder why the Department of Energy money is not flowing yet. Also, loans are designed to help fulfill the campaign promise of President Obama to put one million electric cars on American roads by 2015.
“Politicians are bursting at the door asking why money is not sent,” said Michael Carr, attorney for the Committee for the Senate Energy, which oversees the Energy Department.
It is a question that Lachlan W. Seward, program director, said he hears a lot these days. “We are moving with a sense of urgency,” said Mr. Seward, who also oversaw Chrysler Loan Guarantee Board from 1981 to 1984. “But while we tried to do this in a responsible manner, which reflects prudent credit policy and to protect the taxpayer.”

Energy Department staff members said they still sifting through loan applications, many of which reached the deadline for submission of December 31. On top of that, another 2 billion U.S. dollars is to come to the department of U.S. dollars 787 billion stimulus package. That money will be used to develop advanced battery technology needed to power electric cars, batteries more durable, safer and cheaper than anything available today.

So far, the program has reached out priorities caught two administrations. The program was not funded until September 2008. Then the Bush administration considered using the Department of Energy fund to help bail in GM and Chrysler, an idea which was later rejected. After this, President Obama had to name a new cabinet. Once Steven Chu has served as secretary of energy, some members of Congress began applying pressure on the fund.

Senator Evan Bayh, Democrat of Indiana, Secretary Chu wrote on Jan 23, two days after being sworn in, to say the agency is required to issue credits as soon as possible. ”

Senators Dianne Feinstein, Democrat of California, and Olympia J. Snow, Republican of Maine, who led a bipartisan effort to raise standards of fuel-mileage, followed by a letter of appeal to an “aggressive timeline” in issuing loans.

In response, Dr. Chu announced last week that the first loans will be made by late April or early May, adding that this document should be simplified and more staff would be employed.

There are complicating factors. Money can be given only to companies and projects that are considered “viable financially.” GM and Chrysler, which have a combined 13 billion U.S. dollars from the Department of Energy, you should wait until the end of March for the Obama administration to decide whether the company would be restructuring plans to make them viable.

The small staff - about a dozen part-and full-time employees - must also, through a kind of complicated proposals, up to 1000 pages. Many applicants have lined up members of Congress to pressure the department. Meanwhile, smaller companies, say they fear most of the money will be directed to Detroit automakers.

However, credit markets well, the program is a rare source of funding to develop technology-electric vehicles.

“Nobody else out there will take on that risk,” said Mr. Seward. “It reminds me of the time, early auto age, when he had hundreds of companies making hundreds of types of machines and then have all coalesced. We are, at that time of the invention.”

Department of Energy has whittled the original loan of 75 applications which seek a total of 38 billion U.S. dollars, down to 25 for a second round of reviews. General Motors is to request 8.3 billion dollars, a portion of the allocation for the Chevy Volt, a plug-in hybrid. Ford is asking for 5 billion dollars for a variety of electric vehicle programs and retooling Chrysler, a unit of Cerberus Capital Management, is to ask around 5 billion dollars. Nissan has said it has submitted an application for one of its U.S. plants that meet program criteria.

Other applications come from battery developers. A123 Systems has applied for 1.8 billion dollars to build a next-generation battery plant in Detroit, and Ener1, a maker of lithium-ion batteries, is asking for 480 million dollars.

“Failure is not an option,” said Charles Gassenheimer, Ener1’s executive director. “We are confident that we would build batteries without government help. But government aid is necessary for launching the business in a mass in the United States.”

Japan, Korea and China are now leaders in the production of batteries used in cellphones, portable computers and other electronic equipment.

Advanced Mechanical Products, a Cincinnati company that converts Saturn Sky sports car in electric vehicles, requested a loan 20 million dollars. Stephen Burns, Chief Executive of the company even dropped out of his claim to leadership of one of the all-electric car from the agency and members of Congress provides a walk.

“Getting money is a big step for us,” said Mr Burns. “I can function without him. But it’ll be on steroids.”

National Association of Realtors reported that existing-home sales fell to an annual rate of 4.49 million in January, the slowest rate in more than a decade. Sales were 8.6 percent versus January 2008.
The median home price fell to $ 170,300, the lowest point since March 2003. The median price in January was 26 percent from the peak of $ 230,100 in July 2006.
Tuesday, a closely watched gauge of housing prices has reported that a single family home prices fell 18.5 percent in December from a year earlier, the fastest rate in the file, and economists said that housing would continue likely to sink as buyers wait for the economy to improve.
Chris O’Connell and Rebecca York are two such buyers. For the last year, they have been looking to switch from Mr. York-room condominium in a three bedroom home in northeast Massachusetts and southern New Hampshire where they could start a family.
Say that the couple intends to spend $ 350,000 to $ 400,000, but that several homes in the area still appear overvalued. They have made two offers - one for $ 25,000 below asking price, and another for $ 60,000 asking price to below - but were not able to work on a deal.
“We continue to go in houses and think,” Yeah, can we buy this house if it drops another 30 thousand, “said Mrs. O’Connell, 32, who works for a service marketing.

But with no pressing need to move, they can afford to hold out for better understanding.

“We can sit and wait,” said Mr. York, 33, an engineer. “We’d like to buy a house tomorrow, but we know that we can expect and find the perfect house.”

Their broker, Richard Rosa, said many would-be buyers have been circling the real estate market, tempted by falling prices in Massachusetts towns like Chelmsford or Billerica shy, but because it is expected that if they wait three months, they could get a better deal.

He said sales were slower in wealthier communities, where housing values have held up, but were taken in cities where values have decreased to farthest.

Home sales were up in January in more distressed parts of Southern California and San Francisco Bay Area, according to research firm DataQuick property. Home values in Los Angeles and San Francisco metro areas are down about 40 percent of the peaks.

National Association of Realtors estimates that Foreclosures and distressed sales - among the cheapest houses available - made up 45 percent of sales in January. Obama administration established a plan of 275 billion dollars to help as many as nine million families refinance their mortgages and avoid foreclosure, using a variety of incentives and government subsidies to reduce interest rates and principal amounts.

In January, sales were flat in the West home. They dropped 5.7 percent in the Midwest and South, and fell 14.7 percent in the northeast.

The inventory of unsold homes fell from 3.6 million nationwide from more than 4.5 million last summer. At the current rate of sales, would have 9.6 months to exhaust the excess supply of housing.

Obama administration plans to take an increased stake in Citigroup echoes the British government experience with one of the largest banks, Royal Bank of Scotland, a bank once highflying universal, which is now nationalized in all but name only.
As for Citi, the UK, involving RBS grew in fits and starts. Government has started a small farm last fall, when he shot at the bank on the brink of collapse, but continued to grab its share price that eroded.
Today it holds a 68 percent stake, allowing it to exercise de facto control over bank management - which was replaced in a shake-up - as well as lending and strategic decisions.
But such a policy, while cheered by those who support a stronger and more direct way of healing the sick banks is not a panacea, as the show at RBS.
“The nationalization of winning will certainly make everyone feel good 24 hours,” said Howard Davies, director of the London School of Economics. “But what do you do next? Must have an exit strategy.”
This week, the bank will announce a £ 28 billion loss, the largest in British corporate history and a plan to divide itself into a healthy bank focused on lending in Britain and a so-called bad assets comprising the bank will seek to sell within five years. Citigroup is committed to a similar strategy. R.B.S. is also looking to pay more than £ 200 billion worth of toxic assets.
Modernization, which amounts to a radical dismembering of the bank far-flung international operations and a severe retrenchment of its wholesale banking operations, will eliminate about 20,000 jobs, the bank is expected to announce.

In RBS’s investment banking hub in Greenwich, Conn.., Top executives closely linked to the largest bank of aggressive expansion in the credit markets are eliminated.

Over the weekend, the bank said in an internal memorandum that Simon Drake Brockman, who oversaw capital markets in America, was resigning.

While RBS problems stem from its previous decisions made by the team management of creeping nationalization charged by the British government, also sown fear among investors that the government’s role will be as universal in order to alleviate bank commercial spirit.

Royal Bank of Scotland stock price has rebounded lately, but continues to trade at only about 20 percent of book value - below that of Citigroup.

But for the British economy, whose fortunes were closely linked to the once-vast financial services industry, concerns about the emergence of nationalization is less important than to prevent a banking collapse.

This month, when the finance ministers of the Group of 7 developed economies convened in Rome, British finance minister, Alistair Darling, has gathered a small group of reporters and told them in no uncertain terms that the government could exercise full control she had on banks to restore profitability and get credit flowing again.

“Government should play an active role in getting banks to rebuild their balance sheets,” he said. “This is an essential precondition to exit the crisis.”

In his comments, Mr Darling repeatedly heard that mantra many times: that the government is not in the business of running banks. But while that may well be the case, in theory, is not in practice.

The numbers tell the story in starker terms.

To absorb a total of approximately 1.5 trillion in debt by £ at RBS and Lloyds Banking Group - another troubled bank - on its own balance sheet, the UK may have prevented a bank failure.

Meanwhile, the government has raised the odds that its own finances in May buckle.

Last week, the national statistics office said that the UK debt to its gross domestic product could lead to as much as 100 percent of GDP, from 48 percent currently. Such a change would put the nation on par with economies such as Greece and Italy, whose governments were heavily criticized for fiscal imprudence.

“The UK has adopted a much harder line with the banks,” said Christopher Whalen, an independent bank analyst. “The Bureaucrats are responsible.”

At Northern Rock, the UK mortgage lender nationalized in 2007 after running the bank, the government-appointed board includes an official from the Treasury. All banks in which the government stake also report on a small body of technocrats, supervised by a public officer appointed John Kingman who once served as prime minister, Gordon Brown to press secretary.

One of the biggest clubs in the government tried to manage is to get banks in which it holds stakes to increase their lending. Monday, Mr Darling said Northern Rock would distribute £ 14 billion of new mortgage loans in the next two years.

But it remains unclear whether diktat credit will be enough to stop the vicious decline in house prices, especially if the market is so weak that an increased supply of mortgage credit is not appropriate sopped application.

In Britain, there were 516,000 house purchase loans last year, the lowest level since 1974, according to the Council of Mortgage Lenders - despite government control of two of the largest mortgage lenders.

“I am not convinced that the problem is supply,” said Mr Davies. “If the public believes that home prices will continue to decline, there is no need to borrow.”