Forgive comparatively terse comments tonight.
The Wall Street Journal reports that Citi and Merrill could have additional losses of up to $25 billion between them and are scrambling to secure foreign funding commitments of $3-$4 billion at Merrill and up to $10 billion at Citi While the article doesn’t say so clearly, the goal is to secure comitments before the two banks have to announce 4Q results (Citi on Tuesday, Merrill next Thursday).
The article discusses how the foreign investment are getting so large that they are soon to run afoul of formal and informal restrictions on foreign stakes. The story fails to contemplate what happens when these losses at major financial firms deepen (just think at the black hole if MBIA and Ambac are downgraded) and foreign concerns are the only game in town as far as funding is concerned. This is a likely scenario that no one seems prepared to deal with.
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Sorry; this is off thread, but here’s what Poole said (quoted by Calculated Risk):
“The rating agencies seemed to have based their ratings on a backward look at default experience on similar mortgages before 2006, rather than on a forward look based on careful analysis of the likely ability of borrowers to repay in less favorable market circumstances.”
And I will sound like a broken record by asking, Why does the Fed allow Var and a bank’s internal models to determine the amount of capital a bank needs to hold? The Fed deems an internal model validated if it backtests; no “forward looking” needed. If the ratings agencies were wrong, so is the Fed. (And then there’s Basel II…)
Fascinating times. How does this jibe with your prior post about potential de-facto nationalization – it seems like just the opposite.
And they’re still have a dividend?
citi at least could eliminate its dividend to raise capital, so SWFs are not the only game in town … and indeed, i am not sure that foreign governments really are the only game in town. presumably there is a bit of capital left in the us or europe. I doubt a takeover by private entity would arouse quite the same concerns as a joint ADIA/ CIC/ GIC bank …
bsetser