World Props Up America
Lisa Lisa
Citigroup, Merrill Tap
Foreign-Aid Lifelines;
Damage Tops $90 Billion
By DAVID ENRICH , ROBIN SIDEL and SUSANNE CRAIG
January 16, 2008; Page A1
In the latest sign of America's sinking financial fortunes, investors
from as far afield as Japan, Korea, Singapore, Saudi Arabia and Kuwait
have come to the rescue of Wall Street.
MORE
* ROI: Citi CEO Makes Interesting Offer
* Who's Who: Behind the infusions
* U.S. Institutional Investors Join RushThe list of players that
agreed yesterday to pump a combined $19.1 billion of capital into
Citigroup Inc. and Merrill Lynch & Co. spotlights a dramatic shift in
power. After flooding the world with capital that fed both economic
growth and excess, battered U.S. financial institutions now are
turning to countries and companies that not so long ago were suffering
through their own disasters.
Yesterday's infusions follow earlier investments into wounded American
and European titans, including Morgan Stanley and UBS AG. The bailout
is another milestone in a long-running trend: the subsidization of the
U.S. economy by foreign investors, from Asian governments purchasing
U.S. Treasury bonds to finance the national debt to deep-pocketed oil
states snapping up stakes in hobbled banks.
"There are quite a few ironies there," says Anthony Sabino, a
professor of law and business at St. John's University in New York.
"Traditionally, it is the U.S. economy and the wealth of the U.S. that
have come to the rescue of nations and businesses across the world."
Merrill's investors, which were announced yesterday, include Mizuho
Financial Group Inc., the second-largest Japanese bank, which was
nearly swamped by bad loans made in the 1990s. Korean Investment
Corp., another Merrill investor, is a government-controlled investment
fund of South Korea, a country that was staggered by the Asian
financial crisis in the late 1990s.
The reason titans like Merrill and Citigroup have had to go hat-in-
hand for money: big losses from bad bets tied to the battered U.S.
housing market.
Citigroup, which yesterday announced a fourth-quarter loss of $9.83
billion, said it would write down the value of certain assets by $18.1
billion. Merrill's fourth-quarter write-downs, to be announced
tomorrow, are expected to be nearly $15 billion. That will push the
toll on Wall Street from the current credit crisis past $100 billion
in losses, equivalent to 0.7% of gross domestic product. By way of
comparison, the total losses from savings and loans and related
commercial bank loans from 1986 to 1995 were about $189 billion, or
3.2% of average GDP in that period. S&Ls alone were $153 billion.
'COMPLICATED TIMES'
From Citigroup's conference call:
Let me start though first by stating very clearly that Citi's fourth-
quarter results are unacceptable; the subprime market deterioration
has been unprecedented; other credit metrics such as consumer credit
have weakened as well. Even so, we need to do better and we will do
better.
As you know by now, we took over $18 billion in write-downs and losses
on our subprime exposures. We increased our reserves and had losses in
our U.S. consumer business, up over $4 billion, and these numbers
completely overwhelmed record performance in many, many of our other
large businesses, as well as strong performance in a number of our
other businesses.
These are obviously complicated times in the market and we want to be
transparent with you on the risks we have and their impact on our
results. We will be very candid with you today and also in the future
so that you can fully understand the decisions we make. [ndash ] CEO
Vikram Pandit
* Read the full transcript of Citi's call, provided by Thomson
StreetEvents (www.streetevents.com).Despite their problems, neither
Citigroup nor Merrill had trouble luring investors, including one U.S.
pension fund and firms drawn to appealing terms such as the 9%
dividend Merrill promised on $6.6 billion in preferred stock that it
will issue. Citigroup will pay a 7% dividend on $12.5 billion in
preferred shares.
"There are trophy properties available for what is petty cash," says
Claire Gruppo, co-founder of Gruppo Levey & Co., which advises
government investment funds.
Former Citigroup Chairman and Chief Executive Sanford Weill, who is
adding to his already large stake in the New York financial
conglomerate, said a total of about $20 billion raised so far by
Citigroup "goes a long way to shore up losses." He added that "many
parts of the company are doing very well."
Vikram Pandit, who became Citigroup's chief executive last month, said
the moves announced yesterday "allow us to be on our front foot,"
using a cricket term for being well positioned.
Despite the billions of dollars in fresh capital, it isn't certain
that either Merrill or Citigroup are out of the woods. Credit markets
are still performing poorly, and consumers continue to tangle with
mortgages carrying interest rates that will adjust upward this year.
Furthermore, Citigroup faces big exposure to the consumer-credit
cycle, which is showing increased signs of weakness. The big bank has
a massive credit-card portfolio that includes subprime cardholders who
are likely to find it increasingly difficult to pay their bills.
Financial stocks skidded yesterday on deepening fears that credit
problems are spreading beyond mortgages and into credit cards, auto
loans, commercial loans and other types of credit. Citigroup helped
fuel the sell-off with bearish comments and $4 billion in fourth-
quarter credit costs in its U.S. consumer business.
So far, the foreign investment in Wall Street firms hasn't provoked a
political backlash in the U.S., in contrast to the uproar that
followed Dubai Ports World's attempt to acquire the operations of U.S.
ports last year. The Dubai Ports World incident raised anxiety about
undermining U.S. defenses against terrorism.
The injections of foreign capital into the two Wall Street giants
emerged as an issue in last night's debate among the leading
Democratic presidential hopefuls. "I'm concerned about this," New York
Sen. Hillary Clinton said, invoking the phrase "sovereign wealth
funds." "We've got to know more about them, they've got to be more
transparent...," she said. "I want the United States Congress and the
Federal Reserve Board to ask these tough questions."
Politicians may be aware that the alternative to foreign investment in
the banking system could be painful. If banks pull back on lending,
that would have negative consequences to the economy. The issue of
selling chunks of Wall Street to Middle Eastern and Asian investors
hasn't figured much in political campaign rhetoric -- perhaps because
voters don't care much about who owns shares in Citigroup or Merrill
Lynch.
'We Need the Money'
"What we've seen so far has been largely constructive. We need the
money," said Massachusetts Democrat Barney Frank, chairman of the
House Financial Services Committee. "Given that we had the losses, the
infusion of money is helpful....We'd be worse off without it."
But the long-term implications are uncertain. Foreigners, including
the investment arms of some governments criticized as autocratic, will
end up with a significant chunk of Wall Street. Existing shareholders
will see their stakes diluted.
Merrill's capital-raising efforts began in October, after its
devastating third-quarter write-down and just weeks before Merrill
Chairman and Chief Executive John A. Thain arrived. At the board's
behest, senior management led by Gregory Fleming, an investment banker
specializing in financial institutions and now the firm's president,
began assembling a list of possible investors, according to people
familiar with the matter.
In December, the firm lined up an immediate $4.4 billion injection
from Singapore's state-run Temasek Holdings. But Mr. Thain and others
figured the firm would need another $5 billion or so. Given the strong
response of investors, they decided to raise more, says one person
involved in the discussions with investors.
"We didn't make any outbound calls on this," this person says. All
investors involved in yesterday's announcement indicated they would
have invested more if they could have, and some ended up investing
less than offered, this person says.
"We contacted them," says William G. Clark, director of the New Jersey
Division of Investment, which agreed to invest $400 million in
Citigroup and $300 million in Merrill Lynch. Mr. Clark approached both
firms about a week ago, after reading press reports suggesting that
they were looking for additional capital.
Most of the Merrill money is coming from overseas. Korean Investment
Corp., Kuwait Investment Authority, and Mizuho Financial Group account
for about 80% of the $6.6 billion raised, says the person involved in
the discussions.
Japanese Move
Mizuho's investment of $1.2 billion is the biggest international move
by a Japanese bank since 1986, when Sumitomo Bank Ltd., one of the
predecessors of Sumitomo Mitsui Financial Group Inc., bought a $500
million stake in Goldman Sachs, then a private partnership that was
fighting to compete with better-capitalized rivals. Sumitomo went on
to make $1.9 billion on the investment. When Sumitomo found itself
short of cash in 2003, Goldman pumped $1.3 billion into the bank,
solidifying the relationship between the two institutions.
Until recently, Japanese banks like Mizuho have largely shied away
from big overseas investments, focusing on beefing up their domestic
businesses. But these banks are now looking to boost their overseas
operations. "We'd like to see if the [Merrill deal] could lead to
cooperation between the two firms in different business areas," says a
Mizuho spokeswoman.
Merrill is hoping to form strategic alliances with each of the big
foreign firms, says a person familiar with the matter.
The large reservoirs of capital available to Citigroup and Merrill are
a marked contrast to past banking crises. In 1991, it took Citigroup
several months of hard searching before Saudi Arabian Prince Alwaleed
bin Talal agreed to pump $590 million into what was then known as
Citicorp. The investment, in the form of a private placement of
convertible preferred stock, gave him an ownership stake of nearly 15%
at the time.
This time, the day after Citigroup unveiled in late November a $7.5
billion investment from the Abu Dhabi Investment Authority, known as
ADIA, representatives of other investment firms started calling
Citigroup.
"A lot of the equity investors were upset after the ADIA investment
because they felt they didn't get a bite of the apple," says one
person with knowledge of the situation. Capital Research Global
Investors, already one of Citigroup's largest institutional investors,
was among the most vocal investors, this person says.
Between Christmas and New Year's Day, a small group of senior
Citigroup executives started hammering out that second round of fund
raising. Citigroup needed fresh cash to keep its capital levels from
dipping into dangerously low territory.
The group included Mr. Pandit, Citigroup's new chief executive
officer; Chief Financial Officer Gary Crittenden; investment banking
co-head Michael Klein; and Zion Shohet, Citigroup's treasurer. They
started reaching out to investors that hadn't taken part in the ADIA
deal.
Their pitch was simple: Investors would have the chance to snap up
significant stakes in Citigroup at half the price it would have cost
them before the credit crunch hit last summer. Citigroup executives
gave detailed briefings on the company's planned fourth-quarter
announcements, including the expected dividend cut and the rough
magnitude of the write-downs.
Other Citigroup executives, including Hamid Biglari, a senior deal
maker responsible for the investment bank's dealings with financial
institutions, reached out to the China Development Bank, an
institution with ties to the Chinese government. They tentatively
reached an agreement last week in which CDB would invest about $2
billion in Citigroup. But last weekend the deal fell through after it
encountered resistance from Chinese regulators.
The setback proved fleeting, as the Government of Singapore Investment
Corp., known as GIC, kicked in extra funding to compensate for China's
withdrawal. GIC ended up as by far the largest investor, pouring in
about $6.9 billion, slightly more than half of the total infusion. The
next largest contributor, the Kuwait Investment Authority, put in "a
fraction" of what GIC invested, says a person familiar with the
matter. None of the investors will own more than 4.9% of Citigroup's
stock, allowing them to avoid added scrutiny from U.S. bank
regulators.
While Citigroup didn't disclose the size of the other investors'
stakes, the contributions were relatively small. One person close to
the situation described the investments by Mr. Weill and Prince
Alwaleed as "tiny little pieces" of the overall $12.5 billion
investment.
Reaching Out to Weill
In recent days, Mr. Pandit reached out to Mr. Weill and asked him if
he'd like to participate. Citigroup didn't need his cash. But
executives were eager for Mr. Weill to invest because it would send a
signal that he endorsed the bank's management and strategy, says a
person familiar with the matter.
Mr. Weill had built Citigroup into a financial colossus. His
handpicked successor, Charles Prince, had recently stepped down amid
mounting losses, and Mr. Weill's strategy of a universal bank has
increasingly been called into question. Mr. Pandit was willing to use
Mr. Weill as a sounding board about Citigroup's problems. Mr. Weill
offered to be an investor, and dealt directly with Mr. Pandit.
As Citigroup executives came to terms with the size of the looming
fourth-quarter loss -- the largest quarterly loss in Citigroup's
history -- the need for billions of dollars in fresh capital became
obvious.
In the third quarter, Citigroup's Tier 1 capital ratio -- a key
measure of its ability to withstand losses and continue serving its
customers -- had already dwindled below the company's internal target
levels, prompting Citigroup to stop repurchasing its own shares.
The investments announced yesterday will go a long way toward mending
the tattered capital ratios. With that and other cash in its pocket,
Citigroup estimates its Tier 1 ratio will rebound to 8.2%, safely
above its internal target and regulatory minimums.
The danger is that further write-downs will continue to chip away at
capital. Even after reducing their value by $18 billion, Citigroup
still is exposed to $37.3 billion of collateralized debt obligations,
or CDOs, complex investment vehicles whose values have cratered as
mortgage defaults have soared.
Citigroup continues to assign higher average values than others in the
industry to the rarely traded instruments, analysts say. As a result,
"more CDO hits could be in store," says David Hendler, an analyst at
CreditSights Inc.
The company's U.S. consumer business could be another source of pain.
Citigroup surprised Wall Street yesterday by taking a $4.1 billion hit
in order to set aside more money to cover possible future defaults on
mortgages, home-equity loans, credit cards and auto loans -- areas in
which the bank is seeing more borrowers fall behind on payments.
Citigroup said those beefed-up reserves should be enough to cover 22
months worth of loan losses -- as long as they stay at current levels.
But many industry observers expect a leap in defaults on credit-card
and auto loans, where credit quality so far has remained solid. If
that happens, Citigroup likely will be forced to bite the bullet and
set aside additional reserves.
--Monica Langley, Craig Karmin, David Wessel and Yuka Hayashi
contributed to this article.
Write to David Enrich at david....@wsj.com, Robin Sidel at
robin...@wsj.com and Susanne Craig at susann...@wsj.com
Shrikeback
the extreme right is their penchant for economic hysteria-
mongering. The end is nigh! The end is nigh! Bury your
Krugerands in the backyard! Run!
"Lisa Lisa" <mand...@verizon.net> wrote in message
news:6d58ed66-f50a-4bde...@y5g2000hsf.googlegroups.com...
Reg Siki
kangarooistan
Nice pics of fed res board members
wall to wall jews
http://www.federalreserve.gov/aboutthefed/default.htm
and
I found this excellent piece by " roofer " see below , not fact
checked , a few years back not sure where he got it from
kanga
=====
- The Privately Owned Federal Reserve Bank -
WHO OWNS FEDERAL RESERVE?
The privately owned Federal Reserve is not a government agency. The
privately owned Federal Reserve Bank (The Fed) is privately owned by a
group of primarily foreign bankers. In 1913, Congress sank America
into eternal debt by giving the power to issue currency, and control
the American economic system to the privately owned Federal Reserve
Bank.
Who are the owners or chief shareholders of the privately owned
Federal Reserve?
Originally there were reportedly 203,053 shares of privately owned
Federal Reserve stock of which approximately 65% were owned by
foreigners, and 35% (72,000 shares) were owned by the following:
1. Rockefellers' National City Bank
* 30,000 shares
2. Chase National
* 6,000 shares
(currently Chase Manhattan and owned by David Rockefeller)
3. The National Bank of Commerce
* 21,000 shares
(now known as Morgan Guaranty Trust)
4. Morgans' First National Bank
* 15,000 shares
Interestingly, the total shares owned by Rockefellers' interests equal
36,000 shares, and the total of Morgans' equals 36,000 shares.
Although the privately owned Federal Reserve Act of 1913 provided the
names of the owner banks be kept a secret, R. E. McMaster, publisher
of the newsletter "The Reaper" discovered through confidential Swiss
banking connections that the following banks have controlling interest
in the privately owned Federal Reserve:
1. Rothchild Banks of London and Berlin
2. Lazard Brothers Bank of Paris
3. Israel Moses Sieff Banks of Italy
4. Warburg Bank of Hamburg, Germany and Amsterdam
5. Kuhn Loeb Bank of New York
6. Lehman Brothers Bank of New York
7. Goldman Sachs Bank of New York
8. Chase Manhattan Bank of New York
(Controlled By Rockefellers)
In his impeccably researched book 'Secrets of the Privately Owned
Federal Reserve', Eustace Mullins states "Because the privately owned
Federal Reserve Bank of New York sets interest rates and controls the
daily supply and price of currency throughout America, the owners of
that bank are the real directors of that whole system. These
shareholders have controlled our political and economic destinies
since 1913." Those shareholders making up Mullins' list are almost
identical to the one compiled by the Swiss baking source.
1. The Rothchilds
2. Lazard Freres (Eugene Mayer)
3. Israel Sieff
4. Kuhn Loeb Company
5. Warburg Company
6. Lehman Brothers
7. Goldman Sachs
8. The Rockefeller family and J.P. Morgan interests
THE INVISIBLE GOVERNMENT
The day before the privately owned Federal Reserve Act passed,
Congressman Charles Lindberg Sr. said the following:
"The money trust deliberately caused the 1907
money panic and thereby forced Congress to create
a National Monetary Commission which led to the
ultimate creation of the privately owned Federal
Reserve Bank."
The Federal Reserve Act establishes the most gigantic monetary trust
on earth. When the President signs the bill, the invisible government
of the Monetary Powers will be legalized.
The people must make a declaration of independence to relieve
themselves from the Monetary Powers by taking control of Congress.
This banking bill perpetrates the worst legislative crime of the ages.
The caucus and the party bosses have again operated and prevented the
people from getting the benefit of their own government!
How did the monetary powers manipulate the passage of the Federal
Reserve Act? Senator Nelson Aldrich was named as chairman of the
Monetary Commission, which was like naming a cat to design the canary
cage.
Aldrich was the maternal grandfather of Nelson Aldrich Rockefeller of
Standard Oil and Chase Manhattan Bank, through the marriage of his
daughter Abby Greene Aldrich to John D. Rockefeller Jr.
The Rockefellers have been the largest beneficiaries of the privately
owned Federal Reserve Bank. The chief architect of the plan was Paul
Warburg, a Rothchild agent, who was salaried at $500,000 a year
(equivalent to about 5 million dollars today).
Another member of the monetary commission was Jacob Schiff of
Kuhn-Loeb and Co. who helped finance the Bolshevik revolution in
Russia with a $20 Million contribution. Schiff was born in a home
shared with the Rothchilds in Frankfurt, Germany.
On November 22, 1910, Aldrich and the rest of the Monetary Commission
met at a private hunting club of J.P. Morgan on Jekyll Island, Georgia
to draft a bill that would put the economic future of the United
States into the hands of a few private Money Powers.
The original bill was the highly unpopular Owen-Glass Bill. The name
of the bill was later changed to the Federal Reserve Act. Its
promoters engineered the timing of the vote for the Federal Reserve
Act.
It was passed hastily in effort to break for Christmas on December 23,
1913 while the majority of the opposing Congressmen were on Christmas
vacation. Then when elected banker financed Woodrow Wilson immediately
signed the Federal Reserve Act.
Within months of starting the privately owned Federal Reserve,
individual Income Taxes were created to pay for this new bankers'
interest expense. The taxes of American Citizens pay the interest on
all new "debt certificate" currency and credit issued by the privately
owned Federal Reserve.