Bondholder Haircuts at Citigroup: At the End of Q1, the Children’s Hour Ends in Washington

“Between the dark and the daylight,
When the night is beginning to lower,
Comes a pause in the day’s occupations,
That is known as the Children’s Hour.”

HW Longfellow

John Crudele gave me a nice plug in the NY Post today

Watching the congressional hearings yesterday, it struck me that the MCs and the bank CEOs are well ahead of the Obama White House and the Treasury when it comes to reality on the large banks.  Fortunately, when the Q1 numbers for the financials come out, the children’s hour in DC will end.

Chew on this for Citigroup citi_copy-of-qer084s


Revs $106bn

SGA $ 61bn

Provisions $33bn

NCLs $22bn

EBIT -$23bn

So obviously provisions can’t go up any more – unless we shoot a lot more people. Think about NCLs in 2009 3-4x 2008 plus further M2M losses equal to that number.

Remember, C’s efficiency is in the 60s while JPM/BAC are in the low 50% range. Makes a huge difference. Or in other words, the $200bn in additional equity that that Tim Geithner talks about for ALL the banks is just enough for loss absorption Citi in 2009.

Now you know why I keep saying that eventually the numbers will force Obama to let Sheila Bair clean up the mess at C, haircut the bondholders and get on with the sale of much of what we now call Citi.  The markets are going to see the C numbers, the markets will react and Washington will finally be forced to have an adult conversation with the global community as to how much we haircut the bondholders.

— Chris

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