by Calculated Risk on 12/13/2007 06:48:00 PM

From the WSJ: Citigroup to Bring $49 Billion From SIVs Onto Its Balance Sheet

Citigroup ..., is bailing out seven struggling investment entities, bringing $49 billion onto its beleaguered balance sheet and further denting its depleted capital base.
...
The move could be the death knell for an industry-wide effort to create a rescue fund for the SIVs. ...

The move underscores how quickly Vikram Pandit, who was named Citi's new chief executive on Tuesday, is moving to tackle the myriad problems facing Citigroup. Just two days into his tenure, Mr. Pandit decided to bring the SIV assets onto the bank's balance sheet ...
...
By bringing the SIV assets on its balance sheet, Citigroup's already-depleted capital levels will come under further stress.
...
A Citigroup spokeswoman declined to comment on possible dividend cuts or capital-raising plans.

by Calculated Risk on 12/13/2007 04:33:00 PM

From CFO.com: Employees Raiding 401(k)s, CFOs Say (hat tip Lyle)

The latest Duke University/CFO Magazine Global Business Outlook Survey, which polls 573 finance chiefs in the U.S. and 1,275 globally, finds that year-end employee bonuses will fall by 10 percent this year compared to 2006. That decline could be especially painful at a time when more employees are dipping into their retirement accounts in order to pay bills.

The survey finds that nearly 20 percent of companies have seen increased hardship withdrawals from 401(k) accounts, often to cover mortgage payments or to avoid personal bankruptcy.

"In the last four or five months we have seen an absolute onslaught of people trying to do hardship withdrawals and loans out of 401(k)s," Mark Anderson, CFO of Granite City Electric, told CFO magazine in October. "What has happened with housing and the economy has really blown up for people at the lower end of the spectrum."

CFOs attribute the 401(k) withdrawals to the effects of the shaken credit markets and higher costs of living, among other reasons. Those concerns have affected companies from top to bottom. Nearly a third of CFOs polled in the survey said their firms have been directly hurt by credit conditions.

This article is from last week. With home equity extraction slowing, consumers are turning to other sources for cash, like credit cards and 401(k) withdrawals. Whatever the source, it appears - at least in November - that they are still spending.

by Calculated Risk on 12/13/2007 12:31:00 PM

From the Fed weekly report on commercial paper this morning, here is the discount rate spread:

Click on graph for larger image.

Worse than August.

Worse than 9/11.

UPDATE: A simple explanation of this chart: This is the spread between high and low quality 30 day nonfinancial commercial paper.

What is commercial paper (CP)? This is short term paper - less than 9 months, but usually much shorter duration like 30 days - that is issued by companies to finance short term needs. Many companies issue CP, and for most of these companies the risk of default is close to zero (think companies like GE or Coke). This is the high quality CP. Here is a good description.

Lower rated companies also issues CP and this is the A2/P2 rating. Correction: This doesn't include the Asset Backed CP - that is another category and is even at a higher rate (see commercial paper table).

The spread between the A2/P2 and AA paper shows the concern of default for the A2/P2 paper. Right now the spread is indicating that "fear" is very high. It is actually very rare for CP defaults, but they do happen (see table 5 in the above Fed link).

by Calculated Risk on 12/13/2007 11:48:00 AM

From Jonathan Weil at Bloomberg: CIBC's Big Subprime Secret Might Cost Billions (hat tip Justin)

CIBC last week [said some company] is insuring $3.47 billion, or about a third, of the collateralized- debt obligations it holds that are tied to U.S. subprime mortgages.

The [insurer]'s identity matters because the bank said these hedged CDOs were worth just $1.76 billion at Oct. 31, down almost half from their face amount. If the guarantor goes poof, CIBC loses its hedge on these derivative contracts. And the Toronto-based bank would have to recognize the loss, which is growing.

If ACA is the insurer, this would be bad for CIBC ... ACA Financial ... had $425.5 million of statutory capital at Sept. 30 and $1.1 billion of so-called claims-paying resources to back its guarantees -- for all its customers. That's not enough to cover the CDOs in question at CIBC.

Weil is speculating that ACA is the counterparty to CIBC, but it does seem likely.

I've also been told that on the Lehman conference call this morning, a Lehman executive said (paraphrased by source) that they "don’t have visibility into--and can’t count on--some counterparties so they have bought CDS’s to hedge that exposure."

by Calculated Risk on 12/13/2007 11:33:00 AM

From Financial News: HBOS pain takes UK bank writedowns to £2bn in a week (hat tip Barley)

HBOS has become the fourth UK lender in a week to announce a multi-million pound writedown on the back of the turmoil in global credit markets, taking the total written off by UK banks in the last seven days to almost £2bn (€4bn).

The bank this morning said it wrote down £520m on its investments, three days after Lloyds TSB revealed a £200m hit on its own portfolio and a week after Royal Bank of Scotland reduced the value of its assets by £950m as a result of its exposure to US sub-prime.

Northern Rock continued to add to the woes of the UK banking sector, saying this morning it had written down its collateralised debt obligation portfolio by £281m.

And the beat goes on ...