Bank WriteOffs Vid & Subprime-driven Big Bank writeoffs on Wall Street looks bad

[MB_722]

http://broadband.bnn.ca/bnn/?sid=205&vid=26562

Subprime-driven Big Bank writeoffs on Wall Street are bound to get uglier


JOHN HEINZL

jheinzl@globeandmail.com
January 15, 2008

[size=11t]If you thought the third quarter was ugly for Wall Street's biggest banks, wait until you see the carnage the fourth quarter has in store.

With U.S. stock markets off to their worst start in history as mortgage-related losses mount and recession fears intensify, the biggest U.S. financial institutions are preparing to drop a fresh load of subprime bombs on investors.

No doubt, someone will make a lot of money buying these financial stocks at the bottom of this mess. But Warren Buffett's golden rule comes to mind. "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."

It's very possible that there is a still a lot of money to be lost on these stocks because the writeoffs being kicked around are staggering, while the U.S. economy is getting feebler by the day.

Citigroup Inc., the largest U.S. bank by assets, leads off earnings season today with a writedown that is expected to hit as much as $20-billion (U.S.), according to The Wall Street Journal. Citigroup may also chop thousands of jobs, cut its dividend and announce another massive foreign capital injection as it struggles to repair the gaping hole in its balance sheet.

"We are much closer to the eye of the storm in financials," Jim Reid, head of fundamental credit research at Deutsche Bank in London, said in a note to clients yesterday. Aiming to put the worst of the mortgage mess behind them, Citigroup and others will be "kitchen-sinking" their credit-related losses, he said.

To restore its capital base, Citigroup is expected to announce a cash infusion of at least $10-billion from foreign investors, including Saudi billionaire Prince al-Waleed bin Talal - already Citigroup's largest shareholder - the Government Investment Corp. of Singapore and the Kuwait Investment Authority. In November, Citigroup sold a $7.5-billion stake to the Abu Dhabi Investment Authority.

Citigroup's shares have tumbled 47 per cent in the past 12 months. But some investors are betting the fourth quarter will mark a bottom for the bank's subprime woes, if new chief executive officer Vikram Pandit - who took over in December after the resignation of Charles Prince - announces bold enough measures to restore investor confidence.

"Not to be perverse, but as long as Citigroup doesn't significantly dilute 2008 earnings per share, the worse the fourth quarter is, the better off its shares may react as recent issues are put a bigger step closer to rest," Lehman Brothers analyst Jason Goldberg wrote in a research note.

Yesterday, the shares gained 1.8 per cent, a sign some investors think most of the bad news may be priced into the stock.

On Thursday, it's Merrill Lynch & Co. Inc.'s turn to open its books. The investment bank is expected to post a writedown of between $11.5-billion and $15-billion, on top of a $7.9-billion hit Merrill took on bad mortgages and other debt in the third quarter.

Merrill, too, is expected to turn to foreign investors for capital, with the giant Kuwait Investment Authority rumoured to be among potential bidders here, too.

Merrill has already tapped foreign investors for a chunk of cash. Under new CEO John Thain, who took over from ousted CEO Stan O'Neal, Merrill in December sold a stake worth up to $5-billion to Singapore's Temasek Holdings Pte. and raised another $1.2-billion from U.S. money manager Davis Selected Advisors LP. It also sold its commercial finance unit to GE Capital for an undisclosed price.

In recent days, Merrill's stock has been rising on hopes that the worst of its subprime struggles may be over. Since Jan. 8, the shares have gained more than 13 per cent, including a 2.3-per-cent advance yesterday.

As tempting as it is to think this whole subprime mess may soon run its course, there's another golden rule of investing that says: When in doubt, stay out. I can't think of a better time to heed that advice, given that the collateral economic damage from the credit implosion is only getting started.[/size]

http://www.theglobeandmail.com/servlet/story/LAC.20080115.RHEINZL15/TPStory/Business

[Bindare_Dundat]

No evvverything is fine and dandy. 

Thanks for the video.

[MB_722]

No evvverything is fine and dandy. 

Thanks for the video.

how?

[Bindare_Dundat]

how?

lol, I was being sarcastic. I agree, the whole affair is a mess.

[MB_722]

hahaha   

[Slapper]

You guys got this shit totally wrong. First and foremost, companies are NOW losing money because they still have, or had, high inventories of products backed by pools of mortgages or by the debt behind those mortgages, and they got caught with their pants down. But make no mistake, COMPANIES HAVE BEEN MAKING A KILLING ALL ALONG, from the mid 90s onward.

If you make 1 trillion dollars in a period of 13 years and lose 10 billion in 1... I hardly call this losing. The only thing is that these companies will want to be bailed out somehow (if they're not able to secure foreign funds) and that money will come outta your friggin pocket. Bush is preparing a plan to bail out, at first glance, the "American people", but he is in reality preparing a plan to bail his compinches out.

The foreclosure problems have been going on for a while and he did diddly shit. It was only after various weeks of companies making public all these huge loses that he took action. Man, the prints at the Federal Reserve are going to be working 24/7 now!!