Citigroup

Citigroup bent on eliminating all unnecessary costs

Jim Kim — Tue, 26 Aug 2008 21:16:23 -0400

The New York Times posts a telling memo from John Havens, the head of Citi's institutional clients group about expenses. It's fair to say that the perks bankers once enjoyed are going away. Blackberry purchases now require pre-approval. Citi is also cutting back on management consultants and contractors and the like. Color copying and printing are reserved only for client presentations, which should be double sided. Only computers and other technology that "can be demonstrated to be absolutely critical" will be approved. Market data feeds are being reviewed, but Havens thinks Citi's usage is above industry "best practices." Non-client travel is being scaled back. Citi will crack down on car service and meals. External training will be limited. Get used to it!

For more:
- here's the Times item

Related Article:
Travel expense controls in place?

Bob Rubin's power at Citi eroding?

Jim Kim — Mon, 25 Aug 2008 21:02:43 -0400

We've predicted that a lot of top bank boards, which largely survived annual meetings in decent shape, would do some tinkering in response to the credit crunch. Citigroup just announced changes that seem to take some power from Robert Rubin. The board has dissolved the executive committee, a seven-member group that could act on behalf of all 15 directors without a full meeting, notes Crain's New York. Rubin chaired that committee for nine years. This appears to be the second move that took away some of his influence. He was previously a member of the Office of the Chairman, a powerful three-man group that was disbanded last year. Some people have criticized Rubin for allowing Citigroup to stumble as it has. Rubin says his power is not diminished, but perception may trump reality. We'll see if ends up on any other committees.

For more:
- here's the Crain's article

Pension view: Risk is good

Jim Kim — Tue, 19 Aug 2008 12:54:16 -0400

We've noted that pensions aren't bailing out on hedge funds and private equity funds. In fact, they continue to embrace them. That has made life a little more of an adventure for some pension overseers. Portfolio profiles Bill Clark, who oversees a $77 billion investment portfolio for New Jersey workers. In search of higher returns, the fund voted to diversify out of stocks and bonds and into alternatives. It has a goal of 19 percent in such vehicles; it's at about 12 percent now. But what has really put Clark "out there" was the decision to invest in Merrill Lynch, Lehman Brothers and Citigroup--only to watch them all tank. The Merrill deal fortunately came with some anti-dilutive provisions that have kept the state from taking a big bath. Clark remains undeterred. His search for alpha continues, though you have to wonder if at some point people in New Jersey will grow uncomfortable.

For more:
- here's the Portfolio article

What good is the universal bank model?

Jim Kim — Mon, 18 Aug 2008 18:36:48 -0400

Citigroup gets all the attention, but the universal banking model was embraced by other banks over the past decade or so, though not to the same degree. The idea of course was to create a set of integrated services that offered customers one-stop financial shopping. In so doing, another benefit would emerge: Business diversification would make banks better able to withstand various shocks. The likes of HSBC, UBS and JPMorgan Chase all bought into that. The AP notes that the current crisis seems to be putting the lie to such thinking. Is JPMorgan Chase better off for its 2004 purchase of Bank One? Ladenburg Thalmann's Richard Bove doesn't think so. Also, the internal breakup of UBS strikes some as admission that the universalist model has yielded bitter fruit. Clearly, the subprime reach was incredibly extensive, reaching across consumer and institutional markets.

For more:
- here's the AP article

Related Article:
Is the current banking model obsolete?

Bank struggling to refinance long-term debt

Jim Kim — Mon, 18 Aug 2008 18:36:03 -0400

Big banks, the likes of Citigroup, Bank of America and JPMorgan Chase, face a wave of maturing long-term bonds at a time when refinancing is proving expensive, the Financial Times reports. The top 10 biggest bank borrowers have bonds worth more than $200 billion maturing between now and the end of the year. December seems to be the peak month, so banks have some refinancing activity ahead of them. That has already started in earnest, but the problem is that refinancing now is not cheap. Banks are being forced to pay high interest rates. This could pressure earnings over the second half of the year, yet another reason to be cautious about the sector. For now, more banks seem to be tapping the central lending facilities from the Fed and the European Central Bank.

For more:
- here's the FT article

A look inside a struggling small bank

Jim Kim — Thu, 14 Aug 2008 22:12:47 -0400

The headlines are dominated by the woes of big banks, the likes of Citigroup and Bank of America. But the most vulnerable banks of course are the small local banks, the ones that hitched themselves to the real estate and construction boom. Fortune offers an interesting look at a small community bank in Arizona that stands as a nice proxy for a lot of small, "entrepreneurial" banks around the country. Towne Bank received a cease-and-desist order in March from the FDIC. Sure, the quality of its loans was poor. Unsatisfactory practices plagued its lending and collection attempts. But you know what? No one cared when times were good. For a lot of these banks, the only way to survive will be to return to banking basics with a vengeance. That will have profound local economic implications. On the flip side, Hudson City Savings Bank of Paramus, NJ is thrift and has fared very well.

For more:
- here's the article

An interesting look at the home equity loan bubble

Jim Kim — Thu, 14 Aug 2008 22:10:58 -0400

The New York Times offers a snap history of home equity loans, which used to be known as second mortgages, via the many memorable ads the banking industry churned out. Citigroup's "Live Richly" campaign, which cost some $1 billion from 2001 to 2006, was among the many that urged people to borrow against their homes. As one ad proclaimed: "There's got to be at least $25,000 hidden in your house. We can help you find it." A PNC ad used a wheelbarrow and the line, the "easiest way to haul money out of your house." At some point, debt lost its stigma. Being in debt up to your eyeballs was seen as a decent strategy, as long as you were fully invested in the booming stock market. The number of past due home equity borrowers is now 55 percent above the historical mean.

For more:
- here's the article
- here's the ads

Related Article:
Citigroup's ad campaign to go global

Credit crunch to lead to more outsourcing

Jim Kim — Wed, 13 Aug 2008 17:49:47 -0400

We've been talking for years about how more financial services firms are outsourcing more knowledge-oriented work abroad. Junior level research and analysis started getting offshored a few years ago. The New York Times notes that the trickle has now become a flood. Top outsourcing firms in India are seeing a healthy bump in business, apparently. The paper notes Morgan Stanley has about 500 people in India doing research and statistical analysis. About 100 of Goldman Sachs' 3,000 employees in Bangalore work on research. JPMorgan has 200 analysts in Mumbai working for its investment banking operations. Another 125 analysts in Mumbai support the bank's global research division. Citigroup has no fewer than 22,000 employees in India, a few hundred of which work on research. So what does this mean for kids aspiring to junior level analysis jobs? By one estimate, 40 percent of research-related jobs on Wall Street will be sent abroad.

For more:
- here's the article

Bill Miller bets on Freddie Mac

Jim Kim — Wed, 13 Aug 2008 08:14:08 -0400

It's fair to say that the financial crisis has been unkind to a lot of value-oriented fund managers. The mindset--by on valuation dips--has proved to be a loser's strategy. Anyone buying on the likes of Bear Stearns, Merrill Lynch and Lehman Brothers on the way down took some big hits. Miller was long on a whole lot of financial stocks, including Citigroup and Countrywide. At one point the Legg Mason Value Trust fund was down a whopping 40 percent. So what's the answer? How can he start a new 15-year streak? In true value fashion, Miller is loading up on Freddie Mac. Fortune reports his fund owns 80 million shares (12 percent of the total). That's up from 15 million shares at the end of last year. Some might call this desperation. We'll see.

For more:
- here's the Fortune article

A look at Merrill's deal on CDSs

Jim Kim — Sun, 10 Aug 2008 09:16:14 -0400

We've heard a lot about how Merrill Lynch's deal with Lone Star valued its collateralized debt obligations at 22 cents on the dollar--and the implications that it might have for Citigroup and others that will likely try to offload their portfolios. The New York Times takes a look at another Merrill Lynch deal, one that seeks to unwind credit default swap positions. The operative number here is 13 cents on the dollar. That's what Merrill's deal with XL Capital values Merrill's $3.7 billion in CDSs. Like CDOs in general, you can't apply this across the industry, but it is indicative of what it will take for banks to offload their CDSs. New York regulators would indeed like other banks to take similar steps. The health bond insurers depends on it.

For more:
- here's the New York Times article