TARP Flip-Flop Rekindles Bair Market in Financials
Hank Paulson's flip-flop on the TARP last week has proven to be perhaps his biggest gaffe yet as Treasury Secretary; this one has caused major dislocations, thanks in part to plunging values for mortgage backed securities. Traders had expected to flip much of the toxic trash into the TARP. But that was a week ago, a virtual eternity in life under Paulson, and now they are stuck.
This debacle has probably wiped out more capital than Hank's previous moves, and chances are even recently departed Citi exec Sallie Krawcheck is ashen faced over the turn of events, given Thursday's plunge was the worst one day implosion in Citi's history:
Executives at Citigroup Inc., faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter....Citigroup's board of directors is scheduled to have a formal meeting Friday to discuss the options, according to people familiar with the situation. Directors also have been talking by phone about what could be done to reverse the stock's slide.
Top executives were locked in meetings Thursday to hash out a stabilization strategy. Chief Executive Vikram Pandit scheduled a conference call for 8 a.m. Friday to discuss the situation with senior managers. WSJ
Paulson's bombshell has left a crater in the financial sector, evidenced by the devastation in the Financial Select Sector SPDR (XLF-AMEX) over the past week.
Ten Day XLF
_________________________________________________________
Forget about the Saudi Prince, who apparnetly never sells or hedges; the recent decline in Citigroup (C-NYSE) is bad news for AXA, which added 29.4 million shares to their position to end the third quarter with 143.8 million shares. Brandes Investment Partners bought 39.1 million in the three months to end September with 81.5 million.
Ouch.
You can pick through the Citi holders and changes in third quarter positions here if you are so inclined, but I would suggest you use your time trying to figure out who could possibly absorb the giant. Will Sheila Bair pull one of her backdoor bailouts? Its her turn to screw something up I think. Or is it Ben’s?
Bernanke is famous for studying the Great Depression, but does not have much to show for it. Perhaps Jimmy Rogers can replace him, at least he has a handle on history, and a theory on bailouts:
Recent Roger Comments
“That has never worked. Let them go bankrupt. Right now bad-managed banks are saved with money from good banks and from you and me. After that, the failing but nationalized banks are going to compete with the well-managed banks and they gain their market share. Ridiculous. The Bail-out plan is a disaster. In 1929 we had a recession but after the government interfered, it became a depression. You should not interfere.”
They should have let all of these guys fail, and we would clean out the system . . . What they’re doing is, they’re taking the assets away from the competent people, giving them to the incompetent people and saying to the incompetent: ‘OK, now you can compete with the competent people, with their money.’ I mean, this is terrible economics. This is outrageous economics.
Well said, Jimmy.
As an aside, rumors are flying around that regulators might ban shorting of financial stocks early next week, which would be the icing on the cake. After all, there is not much left to go after.
Lets hope Sallie’s Krawcheck’s severance was computed with a double digit stock price. It would be the only fortunate turn of events in this giant shitshow.
________________________________________________________
__________________________________________________________
___________________________________________
Cramer says Citi is a zombie:
___________________________________________________________
“Troubles assets?” Whats in a name....
Citi Weighs Its Options, Including Firm’s Sale
WSJ
Tangled tangibles - Dick Bove makes a comeback, in print
FT Alphaville
----------------------------------------------------------------------------------------------------------
The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position
