Mish, of Mish’s Global Economic Trend Analysis, has an superb write up about why he and others think Citibank is in trouble.  This is yes another must read, here is a highlight:

Here is the key paragraph in all of these articles.

Perhaps what we’re really seeing is a business reacting to hidden deterioration of asset bases that are not known by investors and the public due to the legitimation of bogus accounting that happened this last March, but which is known by company executives!

Ding! Ding! Ding!

We have a winner. Citigroup needs money, and needs money badly. Moreover, there is no reason to believe this is all credit card related. In fact, there is every reason to believe Citigroup (and other banks) are in trouble on multiple fronts.

But as Shelia Bair said yesterday – Don’t worry, we are the government, we will never run out of money.

In a time when credit is contracting banks feel the need to penalize responsible credit users.   Credit card companies are going to start placing fees on users who do not maintain a balance, pay their bills in full and/or do not send enough within a 12 month period.

Citigroup, meanwhile, has started charging annual fees to card holders who don’t put more than a specific amount on their cards, typically $2,400 a year. Other banks are charging inactivity fees if customers don’t use their credit cards during a specific period of time. You heard that right: You could be spanked for staying out of debt.

Just amazing, isn’t it?

Citibank is closing down credit accounts, giving consumers little to no warning:

Shannon Burdette tried to pay with her Shell Mastercard after filling up her gas tank this weekend but found the card rejected.

Confused, she called the customer service line on the back of the card, issued by Citibank, and was told the account was closed because of something that appeared on her credit report. But when the Sykesville, Md., resident got a copy of her credit report online, the only negative thing she saw was “closed at credit grantor’s request” on the Shell MasterCard account.

Citibank is well within their rights to close a credit account, at any time, for any reason, the manner in which they have done to with this group of consumers sure does not work in their favor from a customer service perspective.

Note: Citibank is NOT the same as CIT Group.

Oh, I’m pissed.

I woke up thinking it was a good day but it turned into a very annoying, very bad day.  The main trigger for the bad mood was dealings with Citibank.

My bank account vanished.  That’s to say I logged into my account and there was no account there.  Weird, no?  As a result, I head over to a Citibank branch and speak to a teller and here is the breakdown.

There was a fear that there was fraudulent activity on my account so Citibank froze my account and removed all public access to the account. They didn’t call me, they didn’t attempt to contact me in any way, they just shut the account down.  I could not gain access via the web or via my debit card at a cash machine. 

Turns out there was no fraudulent activity (yay!) so they re-activated my account.  Problem being my FUNDS were not released.  My account was unfrozen but the money was not available.  The branch attempted to have the funds released but was unsuccessful in their attempt.  The theory was that it would take one business day to release the money back into my account and the funds should be available tomorrow.

Since it’s not yet tomorrow and I don’t have my time machine available at this very moment, I don’t know if this is actually the case.  Will my money be available, will I not?  Will I have to continue on with this headache well into next week and, as a result, will I be late in paying some bill because Citibank won’t allow me access to my money?

The teller I was dealing with was very helpful but I still want my money, damn it.

Second…

I go in for a haircut and as for an half-inch off and to leave the back longer as I tend to have a bit of a cowlick.  Wouldn’t you know it, the damn stylist goes and takes off more than I want AND cuts the crown uber short.

Immediately I say “you’re cutting too short” but she continues.  Granted, I was committed to the cut the second she took off more than I wanted.  Really, what could I do at that point.

After voicing my displeasure a few times her behavior didn’t change. I was stuck.  What really gets me is the question she asks at the end: “How do you like it?”

I don’t, you dumb ass.  I can feel the hair sticking up on the crown of my head and it’s about two inches shorter than I asked for.

For the first time in my life I didn’t tip.

Damn it, I just pissed today.

Being out of it for the last 24 hours (or there about) means that I’ve missed a few things in the world of business.  Well, in the world in general as well.  

Anyway, there are a number of things that caught my eye as I went over the headlines for the last day.

Chrysler Dealers: ‘They Turned Their Back On Us’ 

You knew it was just a matter of time before the dealers/dealerships that fell victim to the Chrysler cuts started to speak up.  It didn’t take long, actually.  Something along the lines of 12 hours…

“I had to notify just around 50 people today that our business has been terminated, that they no longer have a job,” said Kevin Ormes, owner of the dealership. 

Ormes got a courtesy call on Thursday morning delivering the news, and he’s angry. 

“Over the past months, they’ve begged us to buy vehicles, they’ve begged us to do everything for them and when it came time to do something for the dealers that basically invested everything that they have, they’ve turned their back on us,” he told CBS 2. 

I actually feel quite sorry for Ormes.  The dealers who stuck with Chrysler, who ended up buying stock when Chrysler needed – but their dealership may not have – are not left in the dark.

Too bad for the dealerships that Chrysler went into bankruptcy. That move allows the company to void contracts (with the approval of a judge), leaving the dealer network virtually hostage to whatever decisions Chrysler made in the name of rightsizing.

G.M. Notifying 1,100 Dealers That They Will Be Dropped

And just as expected, General Motors did the same – the notified and additional 1,100 dealerships they were no longer needed in the GM family.

What I find interesting about the latest news is the input provided by the National Automobile Dealers Association.

The National Automobile Dealers Association estimated that the G.M dealerships being dropped employ 63,000 people, and that 40,000 work at the Chrysler stores being closed. Thousands more jobs are at stake in the later phases of G.M.’s dealer cutbacks.

There are another 100K jobs that will be looking for employment.

Empire State Manufacturing Survey: Conditions worsened modestly in May

The much watched Empire State Manufacturing Survey data was released on Friday, and wouldn’t you know it, conditions continued to decline.  

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers worsened only modestly in May. Although negative, the general business conditions index rose 10 points to -4.6, its highest level since August of last year. The new orders index fell several points and remained below zero, while the shipments index inched into positive territory. The inventories index remained negative, but rose from last month’s record low. Price indexes also continued to be negative, with the prices received index falling 10 points to a record low. Employment indexes indicated further contraction in employment levels and in the average workweek. Future indexes improved substantially for a second consecutive month; the future general business conditions index rose 11 points to its highest level since September.

Business news is now reaching what I would call the “good bad news” cycle. People are now taking bad news and are trying to make it look good by saying “it wasn’t as bad as the last report”.  

Contraction is contraction.  Wake me up when growth actually starts.

Signs that the consumer is hurting, Credit Card Defaults Reach Record Highs in April

For most of this recession cycle, the news has focused on the business community.  How banks are not making a profit, how retailers are overstocked with inventory, how homebuilders are unable to sell.  

Well, the signs that the consumer is actually hurting can now be seen.

Take a look:

Default rates (per credit card issuing bank)

• Citibank – 10.21
• Wells Fargo – 10.03
• JP Morgan – 8.07
• Discover – 8.26

As unemployment continues to rise, it would be safe to expect the above numbers to continue climbing.

At 5:00 PM this afternoon, the bank “stress test” results were published.  From the looks of it, a number of banks need significant amounts of capital (originally posted at Calculated Risk):

Once you look past the fact that roughly $75B more is needed, one has to ask “what does this really mean?”

I’m afraid to say that the results may mean nothing.  Yes, $34B for Bank of America is a boat load.  Same goes for the $15B Wells Fargo and $11.5B for GMAC need, but what if the additional funding does not help in the long run?  I ask this question simply because there is significant doubt around the credibility of the stress test results.

The assumption the test is based on is that these 19 financial institutions could potentially face another $600B in losses under “the worst conditions” but what if it’s more?  What if there is another $1.2T in losses? Will the banks be able to turn to the private markets in order to raise capital, as Wells Fargo is already saying they will do?  Would the investment community continue to throw money down the hole, or would Uncle Sam need to act as backstop once again?

I still believe the worst is yet to come.

If you take a quick trip down memory lane you will recall there was significant debate as to releasing the bank stress test data.  When will the government?  Should the government?  How will they do it?  

You get the point.

Anyway, the data is due to be reported this week and the information that is leaking out seems to be a bit disturbing – 10 of the 19 banks will need to raise capital.

The U.S. is expected to direct about 10 of the 19 banks undergoing government stress tests to boost their capital, according to several people familiar with the matter, a move that officials hope will quell fears about the solvency of the financial sector.

The exact number of banks affected remains under discussion. It could include Wells Fargo & Co., Bank of America, Citigroup Inc. and several regional banks. At one point, officials believed as many as 14 banks would need to raise more funds to create a stronger buffer against future losses, these people said, but that number has fallen in recent days.

Looking a bit deeper into the news that is in the press, the really disturbing information starts to find the light of day:

Bank of America Corp(BAC.N) has been deemed to need as much as $34 billion in additional capital, according to the results of a government stress test, a source familiar with the results said on late Tuesday.

Bank of America spokesman Scott Silvestri declined comment

Remember that Bank of America was considered to be surviving institution.  While the acquisition of Merrill was significantly more difficult than expected, the government had already provided support due to the situation.  

If the information out now is to believed, and Bank of America does need an additional 34B, what does that mean for the financial institutions deemed at risk, such as Citibank?  Better yet, what does it mean for the “solid” companies such as J.P. Morgan or Wells Fargo. 

The data release date is on 5/7… it will be interesting to see how the market reacts.

Anyone who even casually follows the financial market is well aware that today a horrific day in the Stock market.  While the Economy (and stock market) experienced a large amount of pain over the last 6 months, today appeared to be even more painful for a number of reasons.

• General Motors finally admits “there is substantial doubt” about their survival

Despite massive restructuring efforts, despite the loans provided by the government, and despite everything the company has said previously, General Motors finally admitted what the rest of the world already knew – the end of the road is close for General Motors.

Deloitte & Touche, the GM’s auditors, made the following statement: 

The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern.

Having experience in the world of audit, this is the professional way of saying “Bankruptcy is going to happen”.  

The major question that is on the minds of most is how this bankruptcy take place?  Will the government act as the funding institution, propping up General Motors during the restructuring process, or will GM face a massive liquidation event pushing the into the pages of oblivion?

President Obama previously stated that he will not allow the American auto industry to fail, and Congress has already provided funding to GM and Chrysler, so what wouldn’t the Government act as the financier for a GM bankruptcy?  

Maybe government officials would fear the backlash from the general public.  

The world will not end when General Motors goes bankrupt, but it will be painful.  Other companies will suffer the same fate as a result and the stock market will whipsaw with uncertainty but we will all survive.  Politicians, however, may not survive the next round of elections if huge amounts of public funding are dedicated to propping up a company that has no hope of survival.

• The list of 19 banks undergoing a “stress test” was released:

• 12% of U.S. Mortgage holders are either behind in their mortgage payments or in forclosure

This one is HUGE.  A record number of mortgage holders, 5.4 million, are delinquent in with their monthly payments.  

The Mortgage Bankers Association said Thursday the percentage of loans at least a month overdue or in foreclosure was up from 10% in the July-September quarter and up from about 8% a year earlier.

The scary part of this information, aside from the drastic rise, is the location(s) of the delinquent mortgages – Louisiana, New York, Georgia, Texas and Mississippi.  The mortgage crisis is spreading beyond the borders of California, Florida, Arizona and Nevada.  What was once a localized but highly publicized event is truly becoming a nationwide crisis.  

• Citibank hits an all time low… of 97 cents

I never thought the day would come where Citibank, once the largest bank in the world, dropped below the one dollar mark today.  While this not “economic” news it is important none the less as the price is a psychological indicator – the stock market believes that Citibank will not survive the financial meltdown.

And what does tomorrow bring?

Pundits and market watchers expect Friday to be an extremely volatile day – at 7:30 AM the new Unemployment rate will be announced. Economists predict unemployment to come in at 7.9%.  Lower and the market may celebrate.  Higher and the day may see a sell off at the open.

No one knows what awaits for us tomorrow, but it sure will be fun to watch…

UPDATE: 03/05/09 - Treasury Secretary Geithner’s choice for deputy withdraws

The person Treasury Secretary Timothy Geithner wanted as his chief deputy withdrew from consideration Thursday, dealing a setback to the understaffed agency as it struggles to address the worst financial crisis in decades.

Annette Nazareth, a former senior staffer and commissioner with the Securities and Exchange Commission, made “a personal decision” to withdraw from the process, according to a person familiar with her decision.

The decision followed more than a month of intense scrutiny of her taxes and multiple interviews. No tax problems or other issues arose during Nazareth’s vetting, said the person, who requested anonymity because Geithner’s choice of Nazareth was never announced officially.

So, did Congress find something in her past or did she simply get fed up of the inquisition?

Yes, I  am up later than I had expected, but I had a good start to the weekend.  I woke up around 11:15, and after taking care of the necessities, got myself out the door and on the way.

Banking Thoughts

Even thought the banking industry is in turmoil I find it refreshing that some banks still have the ability to focus on customer satisfaction.  I walked into Citibank today to take care of a few record keeping issues and I would not have been happier – outstanding service, friendly bankers, and my issues addressed with no problems at all.  

While Citibank is in the process of dividing up their business into different operating areas, it is clear they are truly committed to keeping their account customers happy.  Based on my problems with eTrade Bank, that is not something I could ever say about them…

Jeans

I tend to not wear jeans.  When I go to the office I’m usually wearing a sport coat or a suit.  Frankly, I would prefer to wear a suit every day if I could.  Not exactly sure why, I there is something about an suit that makes me feel..  relaxed.  When I do wear jeans I am usually just running out to the store, and then it’s only for the run out.  I get home and I’ll be in shorts.

Back in 2004 I picked up a pair of Banana Republic jeans at one or the BR outlet stores in California.  I wasn’t putting much thought into it, I simply picked my size and went on my way.  Turns out they were the best jeans I ever purchased.  The cut fit me “just right” and I finally felt “comfortable” in something else than a suit.  Thinking I could duplicate the experience, I poked around Banana Republic to find another pair but I had no such luck.  

Today, however, I found another pair of jeans that just work for me at the Levi’s store in Evanston.  A good old pair of 501’s ended up doing the trick.  Everything feel into place – texture, color, and cut were exactly what I was looking for. A truly pleasant surprise!

I know the history of Levi’s, and I’ve known about the efforts they’ve taken in order to reclaim market share from Diesel  and True Religion.  Based on the product I picked up I believe they are really on their way.

Revolutionary Road

I saw Revolutionary Road today and was very impressed.  I now can officially say I am a fan of Sam Mendes (American Beauty, Road to Perdition, Jarhead).  Each movie he does manages to impress me, be it the use of music (or lack of) to influence the viewers emotions, the use of light or camera positioning.  Top quality.  As I was watching Revolutionary Road, however, the very first think that came to mind was “I can totally relate”.  

Actually, as I’ve faced challenges in life I’ve always looked for a way to describe how I feel.  A classic example for me tends to be “Imagine taking every single thought you’ve had over the course of a day and jam it into a single second, that’s how I feel.”  I now have the ability to point someone to this movie and say “Watch this and you’ll know”. i ‘m really not going to go into detail about the movie – at this point – as I think this is one that shouldn’t be influenced by outside sources.  Just simply go an see it.

And yes, I’m still sick

I forgot to mention…. I’m still sick.  The situation seems to be improving, the runny nose is mostly gone, as are the aches, but the sinus is still driving me nuts.  I hate that my sinus problems always last a significant time after the triggering sickness has long since left.  Ah well, it could be worse.

Well, I’m off for the evening….  until next time, keep your powder dry.

Market consolidation continues.

Citigroup (C) will buy the Wachovia banking assets for $2.2 billion in an all-stock deal. Wachovia was the fourth largest bank in the United States which had about $53 billion debt and a loan portfolio worth more than $300 billion. Due to the purchase Citi will have roughly $42 billion of losses due to bad debt.

Here is the real kicker – let’s say you were a Wachovia share holder. On Friday ever share you owned would have been worth $10 but, as you woke up Monday morning, your shares would have been worth .86 per share.

Ouch.

UPDATE: Why did Wachovia need to sell so quickly?

Be cause it ran out of time. That is to say the bailout did not happen quick enough, it could not get rid of it’s bad loans, and needed to sell before it collapsed.

UPDATE: Shares of National City Pluge 52%

The stock market is wondering who is next to go and, by the looks of it, they are thinking it may be National City.