Rubin Pries Open The TARP For Citigroup
Perhaps financial institutions seeking government assistance should hire Robert Rubin to negotiate on their behalf. The former Clinton Treasury Secretary and Obama economic advisor is a Director and Senior Counselor at Citi, who spent the weekend negotiating with Treasury Secretary Paulson who agreed to reopen the TARP to help restore market confidence in Citigroup (C). The government’s intervention caused a “relief rally” in the stock market today that peaked in the afternoon and boosted Citi’s stock price nearly 58% to close at $5.95.
Despite being one of the initial nine “healthy” banks that received money when Paulson announced the TARP’s Capital Purchase Plan on October 14, Citi’s stock has been declining. The rapid loss in Citi’s stock price began in earnest last week after CEO Vikram Pandit told employees that Citi was abandoning plans to sell $80 billion in distressed assets. That news was followed by an announcement two days later that Citi was buying $17.4 billion in assets from its SIV consisting of MBS, taking a $1.1 billion loss on its reduced value. After closing at $3.77 on Friday, Citigroup and government officials worked all weekend to come up with a plan that was publicly announced just before midnight Sunday.
Under the agreement coordinated with the Treasury, Federal Reserve, and FDIC, $306 billion of Citi’s portfolio consisting of mostly loans and securities linked to commercial and residential real estate loans, will be backstopped by the government. Citi will absorb the first $29 billion in losses, thereafter loss sharing will be divided between 10% Citi and the remaining 90% will be absorbed by the government. Citi must give $7 billion of 8% preferred shares as an initiation fee. Citi will sell $20 billion in preferred shares at an 8% dividend, for a total preferred share issuance of $27 billion. The government will receive a $2.7 billion warrant for a ten year term at a $10.61 strike price, equal to 10% of the total issue. Citi’s common share dividend was reduced to $.01 per share per quarter for three years.
By its size and dominant international presence, Citi would pose a major systemic risk to the global financial system if it was allowed to fail. Citigroup’s origins trace back to the founding of the City Bank of New York on June 16, 1812 in New York City. As transiting Saturn in Virgo began opposing the founding chart’s Pluto in Pisces this month, the market began acting as if Citi would not survive in its current incarnation and would need to be dissolved after its parts got broken up and sold off in pieces. Saturn in Virgo (fear of more writedowns) opposed Citi’s stock chart natal Jupiter in Pisces (unrealistically valued assets accumulated from taking excessive risk) late last week. The opposition of Saturn in Virgo and Uranus in Pisces will continue to affect these planets in the charts through September 2009.
Saturn in Virgo exactly conjoined Robert Rubin’s natal Neptune over the weekend when The New York Times featured a must read story (“Citigroup Saw No Red Flags Even as It Made Bolder Bets”) that places responsibility for Citi’s current problems on Rubin (along with former CEO Chuck Prince) who pushed a strategy of excessive expansion and risk taking. Rubin blurred the boundaries (Neptune) between Citi’s risk managers and traders. The bank could have used someone knowledgeable about planetary cycles as “Citigroup’s risk models never accounted for the possibility of a national housing downturn.” The Times article notes that the bulk of Citi’s $20 billion in mortgage related securities still on its books have been marked down to between 21 and 41 cents on the dollar. And then there’s the billions of dollars of corporate and LBO loans, and the yet unknown level of losses if loans on autos and credit cards turn sour.
The government’s deal with Citi does not call for any executive changes; however Citi must submit an executive compensation plan for government approval. Vikram Pandit became Citi’s CEO almost year ago. Pandit is determined to clean up Citi’s balance sheet, and with his Sun, Mercury, and Venus in Capricorn, his natal planetary energies are in harmony with Saturn in the clean up the books sign Virgo. Transiting Pluto in Capricorn will conjoin his natal Venus in Capricorn and challenge natal Jupiter in Libra throughout most of 2009. Pandit should be obsessively focused on selling assets, eliminating excess waste, taking more writedowns, and modifying mortgages where feasible beyond the FDIC’s procedures required in the government’s arrangement.
I wrote about Pandit’s anger over Wells Fargo (WFC) usurping Citi’s deal with the FDIC to acquire Wachovia (WB), as Wachovia’s deposit base provided the capital and the FDIC the financial backstop that Citi needed. Pandit should have calmed down now that the government has given Citi a better deal than if its original deal with Wachovia deal had gone through.
Interestingly, Pandit told the Financial Times on Saturday that his traditional Indian upbringing is a source of calm: “As I go about my life, there is a clear sense of Karma, that the tide is going to come and go and the main thing you have to do is influence where you are on the tide.” Now that Citi has double dipped into taxpayer money, Pandit must insure Citi stands on the positive side of the tide of public opinion by proving Citi’s worthiness in both financial strength and public posture. Citi needs to go the extra mile to treat their retail and commercial customers better than their competitors.
The bottom line is the opposition of Saturn in Virgo and Uranus in Pisces to the stock chart Jupiter shows Citi needs to win back our trust.
Vikram Pandit: January 14, 1957 time unknown Nagpur, India
Robert Rubin: August 29, 1938 time unknown New York City
Posted 11/24/2008 09:47:00 PM