U.S. Banks Citigroup and Merrill Lynch Reveal Fresh $15 Billion Loss, Deutsche Bank H

[ghemminger]

U.S. Banks Citigroup and Merrill Lynch Reveal Fresh $15 Billion Loss, Deutsche Bank Holding More Toxic Waste on Balance Sheet than Shares Are Worth

April 13th, 2008

HAHA Another weekend of financial news so horrific that it can’t be revealed during market hours. Remember, I’m taking a break from using the EMERGENCY designation when it comes to this type of news. This is the new normal. I guess we should get used to it.
Via: Times Online:
CITIGROUP and Merrill Lynch will heap further pain on Wall Street this week as they reveal additional sub-prime write-downs totalling $15 billion (£7.6 billion) or more.
In another sign of the intense pressure on leading banks, Deutsche Bank is attempting to offload some of its €35 billion (£28 billion) of toxic debt to a consortium of private-equity firms.
Huge exposure to American mortgages is expected to result in Citi taking a $10 billion hit to its accounts, dragging the bank to a first-quarter loss of almost $3 billion. Some analysts believe Citi’s write-downs could stretch to as much as $12 billion.
Merrill will suffer $5 billion of write-downs, analysts say, which would push the bank $2.7 billion into the red.
It is expected to knock a further 20% from the value of its sub-prime holdings, in spite of the fact that it announced $18 billion of write-downs only three months ago.
The new rash of Wall Street losses and write-downs come in addition to the billions that have already been recorded.
The world’s biggest banks have suffered losses and write-downs totalling almost $250 billion since the beginning of 2007, according to analysts. Last week the IMF shocked markets by saying that global losses from the credit crisis could rise to $945 billion.
JP Morgan is expected to offer the only glimmer of hope from this week’s results, posting a small profit, in spite of huge exposures to leveraged loans.
Some of the world’s biggest banks are beginning to work on new solutions to relieve tension in the financial markets.
Deutsche Bank is understood to be talking to a number of private-equity funds about a disposal of some of its backlog of loans to venture-capital firms.
The value of leveraged loans sitting on Deutsche’s balance sheet is greater than its shareholder equity. The bank is planning to sell on the loans to the private-equity funds at a loss to free up its balance sheet, according to market sources.
The plan mirrors a similar move by Citi to sell $12 billion of its leveraged-loan portfolio to private-equity firms including Blackstone, Apollo and Texas Pacific Group.

[kyleAF]

Deutsche Bank is attempting to offload some of its €35 billion (£28 billion) of toxic debt to a consortium of private-equity firms.

Question:

Who the hell are these private equity firms, and how the hell do they have either so much money to burn that they don't care about losing it, OR absolutely no understanding of the losses they will be taking?

Seriously, why would anyone buy this crap?

I'm hoping that financials see a massive sell-off tomorrow, so I can get my shorted money back. Then I'm getting my investments out of the dollar completely. I've decided I don't wish to play the part of a Wall Street money mover. I'll invest, but no longer will I try to speculate that other people and pension funds will lose money.

[Sarge]

Here is another potential bomb,

http://www.bloomberg.com/apps/news?p...boA&refer=home

[grizzums]

Question:

I'm hoping that financials see a massive sell-off tomorrow, so I can get my shorted money back. Then I'm getting my investments out of the dollar completely. I've decided I don't wish to play the part of a Wall Street money mover. I'll invest, but no longer will I try to speculate that other people and pension funds will lose money.

I understand where you're coming from with that sentiment, but shorting securities plays an integral role in the marketplace. Short selling is, in my opinion, an important financial transaction that punishes not only irrational market participants but also incompetent, unreasonably greedy, self centered and irresposnible management teams.

Making money on other people's pain can be morally discomforting (if that is your percieved intention in shorting), and the practice can be a great discussion point for populist politicians that get lobbied from industries (like bond insurers) that cry about the "evil short sellers" as if it was them that caused the trouble in their business platforms but I am of the belief that short selling helps to avoid larger bubbles in the market and thus could/can potentially save many investors some serious pain after these bubbles eventually burst. Therefore, I look at shorting securities through a different set of lenses.

Regardless, I wish you the best of luck.

[scotto2008]

I understand where you're coming from with that sentiment, but shorting securities plays an integral role in the marketplace.

Sometimes the only buyers are shorts covering their positions. So it's sort of a wash, I think.

[scotto2008]

HAHA
Another weekend of financial news so horrific that it can’t be revealed during market hours.

Bernanke needs time to fire up his helicopter fleet. I wonder what Ben will come up with next.

Long live Son of Bubble Man!

"The Bubble Man"
http://www.youtube.com/watch?v=Q3peAYJSJSg

[Cowlesy]

Question:

Who the hell are these private equity firms, and how the hell do they have either so much money to burn that they don't care about losing it, OR absolutely no understanding of the losses they will be taking?

Seriously, why would anyone buy this crap?

I'm hoping that financials see a massive sell-off tomorrow, so I can get my shorted money back. Then I'm getting my investments out of the dollar completely. I've decided I don't wish to play the part of a Wall Street money mover. I'll invest, but no longer will I try to speculate that other people and pension funds will lose money.

Private Equity firms typically raise capital from pension funds, retirement funds, endowment funds, sovereign wealth funds and ultra-high networth ($25M +) individuals. These funds have a typical investment horizon of 5-7 years, so when they buy these banks, hedge funds (possibly) or other financial firms, they're looking to exit their investment t+5 to 7 years from now. At this point , there really hasn't been heavy Private Equity entrance into the financials, but when there is blood in the streets, they'll be buyers. Usually they employ leverage to help provide outsized returns, but the leverage market (credit crisis) has dried up. That being said, they're still sitting on plenty of dry powder in the form of cash-capital to purchase distressed banks/companies/firms.

Historically, they produce very consistent and above-average annualized returns (20% +) on large amounts of capital. You will sometimes hear the terms "smart money/dumb money", which can be applied to pension fund managers (dumb money) commit their capital to investment managers (smart money) to provide these big returns. While by no means the only reason, PE firms have been large contributors to the actual growth and safety of many pension and retirement funds (think CALPERs, CALSTRs). That being said, investors are very careful in who they decide to investment their capital. They're even more careful with the implosion of a bank (nothing like a PE firm, but still a well-known financial firm--Bear Stearns).

When these PE firms invest in finance companies, they are much less concerned about short-term trading spikes or plummets (SEC rules typically "lock-up" these firm from periods from 1 to 3 years if they buy a major block of shares), as they've reviewed the company from a longer term perspective. While there have been major hedge fund collapses (Long-Term Capital Management, Amaranth), to my knowledge there has never been a major Private Equity firm collapse, mainly because they avoid risky/obscure products and focus on the creation of value by purchasing sound companies. That being said, the Carlyle Group created a leveraged fund to buy mortgage-securities, and it completely folded. However this does not mean the Carlyle Group has imploded, just one of their investment funds. Other major players in private equity are The Blackstone Group, Apollo Management, Texas Pacific Group ("TPG"), Thomas H. Lee Partners, Bain Capital (Romney's former firm) and many others.

[kyleAF]

I understand where you're coming from with that sentiment, but shorting securities plays an integral role in the marketplace. Short selling is, in my opinion, an important financial transaction that punishes not only irrational market participants but also incompetent, unreasonably greedy, self centered and irresposnible management teams.

Making money on other people's pain can be morally discomforting (if that is your percieved intention in shorting), and the practice can be a great discussion point for populist politicians that get lobbied from industries (like bond insurers) that cry about the "evil short sellers" as if it was them that caused the trouble in their business platforms but I am of the belief that short selling helps to avoid larger bubbles in the market and thus could/can potentially save many investors some serious pain after these bubbles eventually burst. Therefore, I look at shorting securities through a different set of lenses.

Regardless, I wish you the best of luck.

I understand that there is a balance at work, and that shorts have their purpose.

Shorting is just an example. Basically, I meant I'm going to be actively investing from now on, rather than just speculating on stock values. I'm looking for a real return...

The stock market is just money movers, no wealth creation, which means if you win, someone else loses. If you invest in an industry or company directly...with dividends coming...you're helping them to create new wealth: everyone wins.

I know it's more complex than that, but that is my sentiment and what I'd rather do, personally.

[HOLLYWOOD]

Question:

Who the hell are these private equity firms, and how the hell do they have either so much money to burn that they don't care about losing it, OR absolutely no understanding of the losses they will be taking?

Seriously, why would anyone buy this crap?

I'm hoping that financials see a massive sell-off tomorrow, so I can get my shorted money back. Then I'm getting my investments out of the dollar completely. I've decided I don't wish to play the part of a Wall Street money mover. I'll invest, but no longer will I try to speculate that other people and pension funds will lose money.

BINGO...

This is how the Treasury/FEDS fund the money to these private equity firms which in turn, BAILOUT the Companies and Corporations for a "FEE"

When the Treasury keeps the FUNDS "PRIVATE" to who borrowed... it's the PEFs, etc.

There's your latest Creative Financing that the good ole honest US FEDERAL GOVERNMENT with their Co-Conspiring FINANCIAL INSTITUTIONS keep the lid on this whole SCAM/SCHEME.

Do you believe that the money TAX PAYERS MONEY loaned out doesn't have to be DISCLOSED!

Thomas Jefferson was so right! BANK and BIG GOVERNMENT are EVIL!