Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts

Wednesday, December 12, 2012

GLOBAL CREDIT CRISIS: MAYHEM

The financial crisis brought the world to its feet!

Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch and American International Group (AIG), are all in a perilous state today. The Federal Reserve on its part has been adding every bit to the domino effect. Its loan of $114 billion to protect the creditors of Bear Stearns and the US Treasury’s backstopping of $5.2 trillion in Fannie Mae and Freddie Mac sent a wrong signal to the failing behemoths. Lehman Brothers, stating that it had debt of $613 billion (with an asset base was of $639 billion) opted for Chapter 11. Days later the Federal Reserve gave $85 billion loan to AIG for a 79.9% stake. Mark Zandi, Chief Economist, Moody’s Economy.com, avers, “The crisis began with sub-prime mortgage borrowers defaulting on their loans, driving many private lenders out of businesses and causing billions in losses for investors. A year later, the crisis has engulfed a growing number of prime borrowers as well, pushing them financial brink and costing investors billions more.” In hindsight a number of reasons can be attributed to the mayhem like lack of government regulation and poor judgment of credit-worthiness of borrowers et al. All-in-all though, this crisis shook all, across the world!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

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Sunday, December 2, 2012

Pride, prejudice & parachutes!

Despite the heroic 'parachute' attempt by the US government, Citi's landing seems hardly soft

Let us pay our humble tributes to all those unfortunate doomsayers (the list includes us too!) who doubted the optimistic presentation of Citigroup CEO Vikram Pandit on the announcement of Citigroups results for the quarter ending September 2008. His speech was peppered with innuendoes like "We are proud..." and "We are making excellent progress..." And our response to that, was a plain and simple "Bah!"

We admit, our game is up. Citigroup's latest bailout from the Fed is definite 'progress' and Citi deserves to take 'pride' in it too! US Treasury (which itself seems to be a likely bailout candidate as it tries to water down recessionary fires here and there with buckets of cash!), Federal Reserve and FDIC have agreed to a $326 billion bailout package for Citi Group. The Treasury will give $20 billion in loan and $306 billion as guarantee for Citi’s toxic assets. In return, Citigroup will issue $7 billion in preferred stock and warrants to the Treasury and FDIC for approximately 254 million common shares of the company at a strike price of $10.61. Besides, Citi has agreed to halt dividend payments for the next three years and agreed for scrutiny on executive compensation.

But are Citi's demons truly licked? A few days earlier, on November 18, 2008, Citigroup announced that it would cut down more than 50,000 of its jobs across the board. The biggest problem for Citi is its huge size which is based on ‘the diversification of financial services model’. In terms of revenue per employee, Citi registers some $488,000, after factoring the job cuts, way below Bank of America’s $568,000 and JP Morgan’s $644,000.


Source : IIPM Editorial, 2012.An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

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