Citi turns a profit! Is the worst over?
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anaconda
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Exactly.
Rock Sexton
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All of your big banks are insolvent because of the exposure to CDS's ....we're talking hundreds of trillions of dollars worth. That's why they are not lending any money. They know they are about to be on the hook for money they don't have.
Can someone explain this mark to market for me. Is it with any asset? or only assets that don't have a market now?
Is it like they have a house that the loan was for 300,000 and now the house they repossed and can't sell is only worth 150,000 so its a -150,000 loss and the suspenseion of MTM would put it now as a 300,000 dollar asset? Or is it just with assets that don't have a market anymore?
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Michigan11
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This smells of desperation. When I first heard about this, I quickly thought of the domestic automakers over the last decade. This was common practice for years and years, they would state a profit, but also cite, enormously large, "one time charges". Last year or in 2007, one of them even stated they managed to squeeze a profit out in a quarter, just before the cards began tumbling down.
Does anyone else see the resemblence? or is this a horrible comparison..
Emmitt2222
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Mark to market is actually pretty simple. Economists and traders like to make everything sound so overly complicated. The mark to market rule applies to securities (so not mortgages by themselves, but things like CDOs, CMOs)
Mark-to-market creates the rule that a company, when doing their finances, must state the value of their securities based on the current market price. Therefore, if a farmer has 10 apples and the current market price at the supermarket is $1 for each apple, the farmer can say he has $10 in assets.
Because these "toxic" assets don't want to be touched by anyone (for good reason), there is essentially no market for these securities. When there is almost no market, then the companies are forced to put on their balance sheets that their holdings are worth practically nothing. When they have to write down such low numbers, their books get crushed. Therefore, people would like to "suspend" this rule so that securities values can be tied to a more made-up number.
My favorite analogy is ketchup popsicles. You have 100 ketchup popsicles and are selling them in your town for 50cents a piece. Your friends who gave you money to start your company, you can tell that you have $50 in assets and are doing great. When you move to the town of people who only wear white, the marketplace essentially dries up. Now instead of being able to sell at 50cents, you can barely sell any for 1cent. You know that in a different market, at a different time, your assets (popsicles) are theoretically worth something decent, but at this time they are essentially worthless. So now you have to tell your friends that you have $0 in assets and must declare bankruptcy.
Or... you could convince them to suspend mark-to-marketing, explaining that the current market conditions are unfavorable and your assets are really worth more. Unfortunately, instead of being stuck in one town of people who only wear white, the whole world is an unfavorable market for these toxic assets.
In a freemarket, they are sold off at firesale prices because that is what they are worth - no more, no less. The open competitive market, working on the fundamental law of supply and demand will always work out the best price. There is way too much supply for a really crappy product and therefore the demand is miniscule. Chop those prices down to "firesale" and the demand will rise to meet the supply.
Suspending mark-to-market just lets banks pretend that their ketchup popsicles are still worth 50cents a piece, when really, Labor day isn't coming for a long time.
Yes. This is a complete fraud but the SEC is in on the game.
CITI- It is also illegal to “pre announce” earnings in this manner
So why did Citigroup do it?
That’s easy….next week starts the Stock Black-out Period for most of the financial institutions before their 1st quarter earnings release. During the black-out period company employees are not allowed to trade (or dump) their own stock until after their earnings release. With the banking sector about to implode any day this will be the insiders last gasp at cashing out.
This Citgroup “release” is the biggest farce since Bear and Lehman said they didn’t need any new capital. It is also illegal to “pre announce” earnings in this manner and has set up Citigroup to be pummeled with lawsuits if the tide turns for them in March. Did you notice that the news said the earnings excluded one-time charges?
“Pandit declined to say how large credit losses and other one-time items have been that would at least partially offset profit.”
The latest housing decline has pummeled the value of Mortgage Backed Securities…are they not counting these? How many Credit Default Swaps did they have riding on GM? GM has already stated that they will run out of cash in March and it has already been agreed that a bankruptcy would be the likely outcome. For years GM has been the poster child for CDS bets with estimates running in the multi $TRILLIONS of bets placed on GM. Counterparty failures are already stressing the derivatives market but a GM failure will surely set off the Weapon Of Mass Financial Destruction blowing the big banks out of the water.
http://goldtent.net/wp_gold/2009/03...legal-to-pre-announce-earnings-in-this-manner
CITI- It is also illegal to “pre announce” earnings in this manner
So why did Citigroup do it?
That’s easy….next week starts the Stock Black-out Period for most of the financial institutions before their 1st quarter earnings release. During the black-out period company employees are not allowed to trade (or dump) their own stock until after their earnings release. With the banking sector about to implode any day this will be the insiders last gasp at cashing out.
This Citgroup “release” is the biggest farce since Bear and Lehman said they didn’t need any new capital. It is also illegal to “pre announce” earnings in this manner and has set up Citigroup to be pummeled with lawsuits if the tide turns for them in March. Did you notice that the news said the earnings excluded one-time charges?
“Pandit declined to say how large credit losses and other one-time items have been that would at least partially offset profit.”
The latest housing decline has pummeled the value of Mortgage Backed Securities…are they not counting these? How many Credit Default Swaps did they have riding on GM? GM has already stated that they will run out of cash in March and it has already been agreed that a bankruptcy would be the likely outcome. For years GM has been the poster child for CDS bets with estimates running in the multi $TRILLIONS of bets placed on GM. Counterparty failures are already stressing the derivatives market but a GM failure will surely set off the Weapon Of Mass Financial Destruction blowing the big banks out of the water.
http://goldtent.net/wp_gold/2009/03...legal-to-pre-announce-earnings-in-this-manner
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HOLLYWOOD
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Another Profit Inflator Remains
Right on through the bubble, and still today, regulators let companies legitimately and artificially inflate their revenue by letting them immediately book into their profit figures the entire value of the sale of their mortgages when those loans are repackaged as mortgage-backed bonds–even though the mortgage payments supporting and underlying those bonds come in over the life of the 15 or 30 year mortgage.
The move lets companies front-end their profits, an entirely legal bookkeeping trick that let firms inflate earnings–and banker paychecks–beyond reality.
Generally, the way it works is, a bank makes a mortgage loan, it then sells the loan to Wall Street, which then slices and dices that loan up, splitting out its principal and interest payments.
Those slices, or “tranches,” get loaded into a pool of money that then supports a bond. Generally speaking, when the bank sells the loan–which it often does to an off-balance sheet vehicle it actually owns–it books the entire value of the loan as a sale. Same for Wall Street when it sells the bond. Even though the money has yet to come in the door in the form of mortgage payments.
The bank and Wall Street firm gets to make up out of whole cloth what they think the future mortgage payment will be, factoring in things like the likelihood of prepayment, interest rate changes, or defaults.
HOW WE FORGET, the SEC and ENRON:
Enron used mark-to-market accounting to book in profits future earnings they expected to get on, for example, their energy deals as if those profits were coming in the door on that day.
In fact, Enron was using its own “mark to model” formula on these assets, which the rules allow, and cooking their earnings, and stock price, higher during the dotcom and telecom boom.
Just like Wall Street, Enron attracted ever more investor capital with its rising stock price and built a house of cards based on leverage and outsized debt.
The Right Way to Do It?
I know accounting can make you feel like you are bicycling through quicksand, but stick with this, this debate sits at the heart of the banking crisis.
Generally speaking, and I mean generally, if you had to follow these rules, it’d be as if the government forced you to sell your house today at distressed prices on a quarterly basis, and subtract that sum from your bank account, even though you have no plans to sell your home whatsoever.
As one analyst puts it, mark-to-market is an ancient theory tied to the belief that markets are efficient and that the last fire sale price represents the best, or fair, value of an asset.
Right on through the bubble, and still today, regulators let companies legitimately and artificially inflate their revenue by letting them immediately book into their profit figures the entire value of the sale of their mortgages when those loans are repackaged as mortgage-backed bonds–even though the mortgage payments supporting and underlying those bonds come in over the life of the 15 or 30 year mortgage.
The move lets companies front-end their profits, an entirely legal bookkeeping trick that let firms inflate earnings–and banker paychecks–beyond reality.
Generally, the way it works is, a bank makes a mortgage loan, it then sells the loan to Wall Street, which then slices and dices that loan up, splitting out its principal and interest payments.
Those slices, or “tranches,” get loaded into a pool of money that then supports a bond. Generally speaking, when the bank sells the loan–which it often does to an off-balance sheet vehicle it actually owns–it books the entire value of the loan as a sale. Same for Wall Street when it sells the bond. Even though the money has yet to come in the door in the form of mortgage payments.
The bank and Wall Street firm gets to make up out of whole cloth what they think the future mortgage payment will be, factoring in things like the likelihood of prepayment, interest rate changes, or defaults.
HOW WE FORGET, the SEC and ENRON:
Enron used mark-to-market accounting to book in profits future earnings they expected to get on, for example, their energy deals as if those profits were coming in the door on that day.
In fact, Enron was using its own “mark to model” formula on these assets, which the rules allow, and cooking their earnings, and stock price, higher during the dotcom and telecom boom.
Just like Wall Street, Enron attracted ever more investor capital with its rising stock price and built a house of cards based on leverage and outsized debt.
The Right Way to Do It?
I know accounting can make you feel like you are bicycling through quicksand, but stick with this, this debate sits at the heart of the banking crisis.
Generally speaking, and I mean generally, if you had to follow these rules, it’d be as if the government forced you to sell your house today at distressed prices on a quarterly basis, and subtract that sum from your bank account, even though you have no plans to sell your home whatsoever.
As one analyst puts it, mark-to-market is an ancient theory tied to the belief that markets are efficient and that the last fire sale price represents the best, or fair, value of an asset.
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Thank you!
C
Chester Copperpot
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yes thank you for that explanation emitt222.. it is now well understood by me
tmosley
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So NOW is the time to short. Short all of them, and you might just make a fortune.
Ethek
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And if Mark-to-Market is tweaked allowing for readjustments? Any trend in the market started by the mark-to-market adjustment may just be allowed to continue upward despite the obvious recooking on the books.
angelatc
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Mark to market *is* an accounting adjustment.
But this is interesting: This guy is saying that AIG was funneling cash to the banks to make them look profitable.
http://zerohedge.blogspot.com/2009/03/exclusive-aig-was-responsible-for-banks.html
torchbearer
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Has Citi released their real report yet?
angelatc
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Quarter just ended Friday - give them a little time!
torchbearer
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