Posts Tagged ‘Citigroup’
Tuesday, June 29th, 2010
The $700 billion Troubled Asset Relief Program (TARP) is turning out to be a better bet than many thought at first. According to the Treasury Department, the amount of money repaid by banks and other recipients now exceeds TARP’s outstanding balance. In a monthly report to Congress on the program, TARP repayments total $194 billion; $190 billion is still outstanding. A large chunk of that came when Treasury sold 1.5 billion Citigroup shares it had acquired when bailing out the bank, netting $6.18 billion.
“TARP repayments have continued to exceed expectations, substantially reducing the projected cost of this program to taxpayers,” said Herbert M. Allison, the Department of the Treasury’s assistant secretary for financial stability. “This milestone is further evidence that TARP is achieving its intended objectives: stabilizing our financial system and laying the groundwork for economic recovery.”
Created during the darkest months of the financial meltdown in the fall of 2008, TARP originally was intended to purchase toxic subprime mortgage securities from banks. Henry M. Paulson, who was Treasury Secretary at the time, later altered TARP to channel money into banks to stabilize them and provide capital to encourage them to make loans at a time when the capital markets were frozen. TARP funds bailed out 707 American banks - including Citicorp and Bank of America — to the tune of $205 billion. Another $331 billion was used to bail out companies such as General Motors and Chrysler.
Banks are making a concerted effort to repay the money to avoid strict executive compensation limits. By May 31, 71 banks had repaid 100 percent - or $137 billion — of their TARP money. President Barack Obama hopes to recoup some TARP losses with his proposal to tax the 50 largest financial institutions. This would net approximately $9 billion annually over 10 years. Congress is considering the legislation, which faces stiff opposition from the big banks.
Tags: bailout, Bank of America, Chrysler, Citigroup, congress, Department of the Treasury, executive compensation, Federal Reserve, financial crisis, financial stability, General Motors, Henry Paulson, Herbert Allison, TARP
Posted in Economics, Financing | No Comments »
Thursday, April 1st, 2010
The nation’s pay czar is widening his review of how much money hundreds of banks paid their top executives during 
the 2008 financial crisis. Kenneth R. Feinberg, officially the Special Master for Executive Compensation, is asking for details on compensation at 419 banks that were bailed out by the Treasury Department’s Troubled Asset Relief Program (TARP). Because Feinberg’s authority over compensation only started on February 17, 2009 - when President Barack Obama signed the $787 billion stimulus bill into law and gave Treasury the ability to shape compensation at bailed-out companies - he can do nothing about bonuses paid at the end of 2008.
The standards for deciding that compensation is excessive must be “contrary to the public interest.” Feinberg’s “look back letter” gives the firms 30 days to provide the information requested. The compensation review applies only to managers who earned upwards of $500,000 during the four-month period that is under assessment. Scott Talbott, senior vice president of the Financial Services Roundtable, said the big banks “will work with Mr. Feinberg to demonstrate that the industry has eliminated pay practices that encouraged excessive risk-taking.”
Last fall, Feinberg cut executive paychecks by approximately 50 percent for the seven biggest bailout recipients. Of those, Citigroup and Bank of America have since repaid the government. Feinberg was able to pressure AIG employees to return a percentage of their compensation. James Angel, a finance professor at Georgetown University’s McDonough School of Business, said, “On one hand, some of these banks were effectively forced to take TARP money. But you could also argue that the executives of surviving banks should not be compensated highly because it wasn’t really their particular skill, it was their luck that they were in an institution that survived when the government bailed out the financial system.”
Tags: AIG, Bank of America, Capitol Hill, Chrysler, Chrysler Financial, Citigroup, financial crisis, Financial Services Roundtable, General Motors, Georgetown University, GMAC, Goldman Sachs, Kenneth Feinberg, Morgan Stanley, pay czar, President Barack Obama, stiumulus bill, TARP, Treasury Department, Wall Street
Posted in Healthcare | No Comments »
Tuesday, March 2nd, 2010
Eleven American banks that received money from the Troubled Asset Relief Program (TARP) originated 13 percent more loans in December than they had the previous month. The Department of the Treasury released this information in its monthly survey of loans made by recipients of the $700 billion government bailout money.
According to the Treasury Department, total loan balances fell one percent during the same timeframe. This report does not include statistics from banks that repaid their TARP funds in June of 2009; future reports will not include data from banks that are exiting the TARP program.
A total of $178.1 billion in new loans was made during December, according to the Treasury. Bank of America led the pack in originating loans, with $64.6 billion, an 11 percent increase over November. Wells Fargo & Company occupied second place with a six percent increase, reporting $58.3 billion in new loans. Citigroup lent $16.3 billion, an 11 percent increase.
Tags: bailout money, Bank of America, banks, Citigroup, department of treasury, loans, TARP, Wells Fargo
Posted in Economics | No Comments »
Monday, February 1st, 2010
David Tepper’s shrewd bet that the nation would avoid a second Great Depression inspired him to buy bank shares at rock-bottom rates, a move that has earned his Appaloosa Management hedge fund an estimated $7 billion worth of profit during 2009. Last winter, Tepper invested heavily in Bank of America stocks selling for $3 a share, as well as Citigroup, Inc. preferred stock, then priced at a bargain-basement $1 per share.
Tepper, a philanthropist who funded the Tepper School of Business at Carnegie Mellon University, made a gamble that is paying off in a big way - surprising skeptics who insisted that he was making a costly error. “I felt like I was alone,” Tepper said. There were days when “no one was even bidding.” An improving market has seen Appaloosa Management earn a 120 percent return. As a result of those gains, Tepper now manages approximately $12 billion, making his company one of the world’s largest hedge funds.
In general, hedge funds had a bad year in 2008, when they experienced a 19 percent decline. Approximately 1,500 funds - 16 percent of the total - went out of business in 2008. The funds had a far better year in 2009. According to Hedge Fund Research, Inc., they are seeing a 19 percent return, the best annual gains in 10 years.
Alan Shealy, a long-time Tepper client, says “Investing with David is like flying, with hours of boredom followed by bouts of sheer terror. He’s the quintessential opportunist, investing in any asset class, but you have to have a cast-iron stomach.”
Tags: Bank of America, Citigroup, David Tepper, Goldman Sachs, Great Depression, hedge fund, recession
Posted in Economics, Financing | No Comments »
Thursday, January 14th, 2010
Compensation czar Kenneth Feinberg - officially, the Obama administration’s special master for executive compensation - believes that the pay reductions he mandated at seven taxpayer-rescued firms should become the model for Wall Street and corporate America.
“There is entirely too much reliance on cash and there’s got to be a better way to tie corporate performance to long-term growth,” Feinberg said. “I’m hoping that the methodology we developed to determine compensation for these individuals might be voluntarily adopted elsewhere.” The Obama administration is holding unregulated risk-taking fueled by excessive pay partially responsible for the financial crisis, which has caused $1.6 trillion in losses and write-downs globally, as well as 7,200,000 jobs in the United States. Between Feinberg’s ruling and Federal Reserve guidelines for banker compensation, the government has inserted itself directly into decisions normally made by corporate boards.
Feinberg has restructured cash “guarantees” into stock that the recipients must hold over the “long term”, according to a statement from the Treasury Department. “Guaranteed minimum amounts give employees little downside risk in the event of poor performance - but upside when times are good.”
Meanwhile, the Federal Reserve has proposed new guidelines on pay practices at that nation’s banks and plans to review the 28 biggest firms to assure that compensation packages don’t create incentives that lead to the risky investments that caused the worst financial crisis in 70 years.
Tags: American International Group, Bank of America Corporation, Ben Bernanke, Chrysler, Citigroup, compensation czar, department of treasury, Federal Reserve, General Motors, GMAC, Kenneth Feinberg, Kenneth Lewis, Obama administration, special master, Timothy Geithner, Wall Street
Posted in Economics | No Comments »
Thursday, December 17th, 2009
The world’s central banks are easing up slightly on the generosity they have shown over the past year when the financial crisis threatened to destroy the global economy. After European Central Bank president Jean-Claude Trichet said his bank would withdraw some liquidity operations, the euro rose. Similarly the pound went up after the Bank of England started purchasing bonds at a slower rate. The Federal Reserve detailed the conditions in which it would raise interest rates - though it hasn’t acted on that yet.
Juergen Michels, chief European economist at Citigroup, Inc., in London, says that “As soon as the first exit measures are put in place, there’s the risk that the market overreacts. We’ll probably see a tightening of financing conditions, and hard-fought-for improvements will be in jeopardy.”
These actions mean that investors will have to operate without the liquidity that has been propping up the world’s economies, even as new concerns about additional asset bubbles grow. Mistiming the withdrawal of support could spoil the fragile recovery. Central banks are changing course at a time when factories are restocking inventories, and the price of commodities like gold and sugar are climbing. The MSCI All-Countries World Index has soared 66 percent since March and sugar has increased 90 percent this year.
“There are all kinds of risks,” said Jim O’Neill, chief global economist at Goldman Sachs Group, Inc., in London. “We don’t know how much of the improvement in markets is due to the central banks’ largesse, and neither do they. They’re pretty nervous, but they’ve got to get out of it at some stage.”
Tags: Bank of England, Ben Bernanke, Citigroup, euro, European Central, Federal Reserve, Goldman Sachs, Great Depression
Posted in Economics, Financing | No Comments »
Monday, November 16th, 2009
A report by India’s Economic Times indicates that up to 11 multinational firms including Wells Fargo, Standard Chartered and Ingersoll Rand set up back office facilities in India during the 3rd quarter of 2009.
A research firm, Everest Group, says this bodes well for the overall business momentum in India picking up in 2010. Two of the reasons cited for India’s resurgence are the depreciation of the Indian currency and the reduction in operating costs which have enticed outsourcing operations back.
Although there was movement of outsourcing projects to facilities in Latin America and Southeast Asia, India continues to dominate the scene in the third quarter.
The new numbers signal a shift away from the doldrums of the first part of 2009. Many U.S. firms like GE and CitiGroup put expansion plans and capital projects on hold due to the deteriorating financial ratios.
Jacob Cherian is AlterNow’s India Contributor. He is a business writer for Offshore Advisor.
Tags: Citigroup, GE, India, Latin America, outsourcing, Southeast Asia
Posted in Economics | No Comments »
Tuesday, November 10th, 2009
The Federal Reserve is considering regulating banks’ pay policies to make certain they discourage employees from making the irresponsible gambles that led to 2008’s financial meltdown. The Fed’s proposal would apply to thousands of banks, including some that did not receive bailouts.
Under the Fed’s proposal, the central bank would review - and could say “no” - to pay policies that might result in excessive risk-taking by executives, traders or loan officers. The move marks the Fed’s most recent response to critics who say it didn’t crack down on lax lending, reckless risk taking and other practices that led to the great recession. If the proposal is adopted, the 28 largest banks would develop internal plans to assure that compensation doesn’t start a new round of disproportionate risk taking. Although the Fed declined to identify which banks would be required to submit plans, it’s safe to say that Citigroup, Inc., Bank of America Corporation and Wells Fargo & Company will be on that list.
“Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability,” says Fed Chairman Ben Bernanke. “The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system.”
The key concept here is that of moral hazard - creating a correlation between performance and remuneration so that people are always compelled to act in the general interest.
Tags: bailout, Bank of America, banks, Citigroup, Federl Reserve, financial market, Wells Fargo
Posted in Economics | No Comments »
Monday, September 21st, 2009
On the first anniversary of the collapse of Lehman Brothers and the onset of the global financial crisis, President Barack Obama used a Wall Street speech to call for stringent new regulation of United States markets. After Lehman’s collapse, the American government infused billions of dollars into the financial system and took major stakes in Wall Street’s most famous names. Although this action stabilized the system, it could not forestall a shrinking economy or the highest unemployment rate in 26 years.
“We can be confident that the storms of the past two years are beginning to break,” he said. As the economy begins a “return to normalcy,” Obama said, “normalcy cannot lead to complacency.”
Lobbyists, lawmakers and even regulators so far have opposed proposals to more closely monitor the financial system. The five biggest banks - Goldman Sachs, JP Morgan, Wells Fargo, Citigroup and Bank of America - posted second-quarter 2009 profits totaling $13 billion. That is more than twice their profits in the second quarter of 2008 and nearly two-thirds as much as the $20.7 billion they earned in the same timeframe two years ago - a time when the economy was considered strong.
Connecticut Senator Christopher Dodd, chairman of the Senate Banking Committee, is the point man for formulating new rules. President Obama wants stricter capital requirements for banks to prevent them from purchasing exotic financial products without keeping adequate cash on hand. It was precisely this type of behavior that caused last year’s financial crisis.
Tags: Bank of America, banks, Citigroup, economy, financial system, global financial crisis, Goldman, JP Morgan, lawmakers, Lehman Brothers, lobbyists, President Obama, Senate Banking Committee, unemployment rate, Wall Street, Wells Fargo
Posted in Economics | No Comments »
Wednesday, July 1st, 2009
The tragic death of the “King of Pop” provides an interesting insight into how hedge funds and private equity groups buy loans in anticipation of future earnings. Michael Jackson made real money during his 40 years as an entertainer; unfortunately, he also lost a lot of money, especially over the last 10 years.
Reports are that Jackson died $500 million in debt. The crushing debt-service payments - combined with losses totaling millions, due to bad investments and money spent to finance his lifestyle - wiped out his fortune and he ended up in hot water with private equity creditors (it should be noted that Jackson was an extraordinary philanthropist, donating $300 million to a multitude of charities during his career.)
In 2003, Fortress Investment Group purchased some of Jackson’s loans from the Bank of America. Jackson’s failure to repay caused Fortress to threaten to call in the loans. Citigroup rode to the rescue and refinanced $300 million of Jackson’s debt. After he fell behind on payments, Fortress moved to foreclose on the Neverland Ranch. Yet another potential savior - Colony Capital - purchased his loans from Fortress and created a joint venture with Jackson to purchase Neverland for $22 million and renovate it for sale. Colony was also backing Jackson’s 50-concert London comeback which had $85 million in sold-out ticket sales at the time of his death. Clearly, Jackson’s brand was perceived to be so valuable (he sold 750 million albums during his career) that the assumption of risk was deemed to be worth it.
Tags: bad investments, Bank of America, brand, charities, Citigroup, Colony, Colony Capital, debt, entertainer, finance, foreclosure, foreign capital, Fortress, Fortress Investment Group, hedge funds, Jackson comeback, joint venture, King of Pop, London comeback, Michael Jackson, millions, money, Neverland Ranch, physician, private equity creditors, refinanced, renovation, risk, tragic death
Posted in Economics, General | 1 Comment »