The Wall Street spin that having a super-sized team of stockbrokers to get past this crisis is absurd. Main Street is so risk adverse at this time with huge hits to perceived wealth through house depreciation and threats to continued employment there are no buyers at this time save 401(k) deductions.
Who are these brokers going to sell to? And what products are they going to be pushing? Will these thundering herds be setting up the next bubble?
Globally, the trust needed to move these products is at an all-time low. Between the toxic paper already sitting on balance sheets around the world, Bernie Madoff and Uncle Sam propping up every US market why would any investor want to get involved with these products.
This idea of get big is a ruse to offset the idea that there will only be two survivors of the credit crash. There are 4 to 5 candidates for these 2 spots and it’s a race to the death for all these firms to survive.
Citigroup’s Board of Directors has backed the existing leadership from Win Bischoff to Vikram Pandit, which tells us there is change in the air.
Once the Smith Barney deal closes possible tomorrow and Citi will get a paltry $2.5B payment, which will do little to offset its projected $16B in writedowns in ’08, Bischoff should be out and Dick Parsons will be seated as chairman of the board.
Parson’s fresh from doing a spectacular job as CEO of unwinding Time Warner from the largest global media company to an also-ran.
Parsons was a protégé of Nelson Rockefeller, working on his staff while both NY state Governor and Vice President. Parsons also owned a house on the Rockefeller estate in Pocantico Hills in upstate NY. Parsons grandfather was once a groundskeeper on the Rockefeller family estate.
During the coming months other profitable Citi divisions will be shopped around. These divisions include Primerica and other smaller financial services shops will be purchased on the cheap along with its research divisions. Not sure but perhaps the Mexican government will take control of Banamex the largest commercial bank in the country.
When this fire sale is completed the bank deposits will be left for Shelia Bair to divvy up to the survivoring banks and then the balance sheet will be nationalized in order not to take other banks down by having to set a true price on all the toxic derivatives left on its books, this despite what Fed chief Ben Bernanke said today at London School of Economics.
File this under the pot calling the kettle black. Citigroup yesterday came out with a negative report on Bank of America saying BofA will report $3.6B loss for the 4th quarter of ’08.
The suspected loss does not surprise anyone, but the Citi analyst’s report comes at a time when his own shop is in dire shape.
BofA was chosen early on to be one of the survivors, with its Countrywide and Merrill Lynch weekend marriages arranged by our TARP inventors. But BofA, like JPMorgan Chase the other chosen spouse of troubled assets, both have underlying problems, which will probably lead to further bailouts and forced mergers and sales by these companies.
BofA’s Ken Lewis and JPM”s Jamie Dimon have been around the table on numerous weekends with Treasury Secretary-designate Tim Geithner during the last six months. So the threats these companies put on their balance sheets, which now seem to be taking these institutions down, will be well aware to Treasury and they will be rewarded with more capital injections from the taxpayers largess.
The Robert Rubin watch continues as the former Treasury chief moves out of Citi boardroom.
As I wrote over the weekend:
[President-elect Barack] Obama’s Treasury Secretary-designate Tim Geithner was Under Secretary of the Treasury for International Affairs under both Rubin and [soon to be senior White House economic advisor Larry] Summers prior to being named NY Fed president. Geithner is said to be a protégé of both men depending on who you ask.
So I do expect Rubin to show up in DC after the Inauguration as someone to help unofficially the Feds in unwinding Citi and deal with its aftermath.
Currencies and trade wars. It appears US trading partners in ’09 are going to be strengthening the dollar as a way of propping up their exports. These actions will help the Feds in financing debt, but will short-circuit any meaningful recovery for our manufacturing sector.
US manufacturing is dependent on cheaper dollar to compete in global markets. US made need to be imposing tariffs in second half of ’09 to level playing field, despite G20 promises.
See you on Thursday.