AIG Puts Goldman Sachs Back in the Limelight

At the end of September Gretchen Morgenson of the New York Times took Goldman to task, publishing an article stating that they had as much as $20 billion in exposure to AIG, and that the dealings and AIG's subsequent exposure came close to "blowing a hole" in Goldman's balance sheet. Of course, 85 Broad took offense, and came out swinging:

Septemeber 28, 2008
Goldman Sachs Group Inc rejected as "seriously misleading" a published report on Sunday that said the Wall Street bank had as much as $20 billion of exposure to the troubled insurance giant American International Group Inc.

The New York Times had said Goldman was AIG's largest trading partner, citing six people close to the insurer. It also said a collapse of AIG threatened to leave a hole of as much as $20 billion in Goldman, citing several of the people.

The report contrasted with a Sept 16 comment by David Viniar, Goldman's chief financial officer, on a conference call with analysts that Goldman's exposure to AIG was immaterial. Reuters

Lucas van Praag, Goldman's Global Head of Corporate, is a PMD in the firm and pulling down millions of dollars a year to spin the media and dress down reporters who dare question the company line - not a bad deal for a non-rainmaking staff position.

The Triumph of Paulson/Mack

As Treasury Secretary Hank Paulson favored Goldman Sachs at every turn. Morgan Stanley’s John Mack lobbied for a short sale ban that put a hurt on huge Hedgistan in mid-September, although it was probably the other SellSide prop desks shorting his stock, if not a figment of his imagination. But they win in the end.  Dirty pool or inside baseball?

Winner winner chicken dinners - hey Mack it is great to see you return to Purcell’s business plan, btw. Great job! :

Resurrection on Wall Street
Barron’s subscription required

Goldman gets $13 billion from separate AIG Facilities/Bailouts set up by Paulson
Fortune
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Great Quarter Guys

If you are like me, you can't wait to hear from Vikram on Citi's quarter in a few weeks. At this point I am very confused exactly what is going on, but Lex has some questions on Pandit's preannouncement...

What did the memo say? Three nuggets in particular seemed to dazzle investors. First that Citi was profitable in January and February and the quarter was looking the rosiest since the third quarter of 2007. Apparently, Citi made $19bn in revenues in the first two months of the year. Second, Mr Pandit calmed fears that depositors as well as clients were fleeing in their droves. Finally, the memo stressed Citi’s strong capital position.

But investors should not lose their heads. The headline-grabbing revenue number, of course, does not include costs or writedowns....“profitable” remains unquantified gives no comfort as to what extent writedowns have eaten into that haul...It remains a brave investor who believes that this time bank revenues can overwhelm the writedown bogeymen. FT

Bernanke has some comforting word today, and the new regulatory framework is a baby step in the right direction, but Geithner appeared to leave his options on Citi open in an interview on Charlie Rose yesterday:

Ben S. Bernanke, chairman of the Federal Reserve, reiterated yesterday that large banks like Citigroup will receive all necessary public support to survive. Treasury Secretary Timothy F. Geithner repeated the point yesterday on Charlie Rose's television interview show but refused to say that a failure was impossible. Washington Post

Speaking of failure, Tim did not dazzle me. I hope Charlie's show only airs domestically. But for now it is apparently Live, and let Live. European banks are ripping on the open in London. Hooray.

Citi Memo
FT

Citi's Long History of Overreach, Then Rescue
Washington Post

Are Regulators Floating Another Trial Ballon on Citi?

The stock market might not know it yet, but dishing out tough medicine to Citigroup is going to begin the healing. Are regulators finally listening to the the critics of their failed policies?

Buy stocks tomorrow - it will encourage these knuckleheads to do the right thing with Vikram & Co.

Barely a week after the third rescue of Citigroup Inc., U.S. officials are examining what fresh steps they might need to take to stabilize the bank if its problems mount, according to people familiar with the matter.

Federal officials describe the discussions, which are wide-ranging and preliminary, as "contingency planning." Regulators are trying to ensure that they are prepared if Citigroup takes a sudden turn for the worse, which they aren't expecting, these people say. WSJ

They gotta be kidding about the situation not taking a turn for the worse, but to their credit this might be their first attempt to try something different, and they seem to be putting it out there for us to vote on. We have spanked their every wrong move - and much like Pavlov's dog, we must encourage the regulators with rewards. I am not going to buy Citi common, but might put PetSmart on my sheets. (Dog) Biscuits for Bernanke!

Lets shoot Vikram just like Old Yeller, and shed a tear later. Gimme a plan Ben, a way to get out of this mess.

U.S. Weighs Further Steps for Citi
WSJ

Vikram Buying Time
Vikram Pandit's Letter to Citi Employees
CNBC

Pandit praises Citi's performance as feds prepare for additonal help
AOL Finance

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