Citigroup, the United States second largest banking conglomerate, is on the brink of failure. Its stock price collapse is the canary in the coal mine, wiping out over nine-tenths of the company's market cap since its 2007 peak, decimating two-thirds of its value just last week alone. At the same time, the collapse in its market cap is also the bank's nail in the coffin, making it virtually impossible for it to raise the capital it desperately needs to save itself.If it fails, it will be, by far, the largest banking disaster in history, involving $2 trillion in assets. That makes it approximately six times larger than Washington Mutual and three times bigger than Wachovia. Moreover, the prospect of a failure by Citigroup poses far greater challenges to regulators than a typical large bank....
The unwinding of Lehman's credit default swaps appears to be going well. Market nervousness about systemic risk was said to be at the heart of banks hoarding cash, no financial detonations have been reported. Market authorities reckon the net losses could be as low as $6 billion. Hardly anything......
The argument that local authorities could not possibly have known that keeping their reserves in Icelandic banks was risky is becoming harder and harder to defend.Here is Simon Watkins writing on thisismoney.co.uk on 16 March 2008:But the real horrors are in Iceland.Credit insurance for debts at Iceland's biggest bank, Landsbanki, is priced at 610 points while that for Kaupthing is priced at a hair-raising 856. Given that these two have taken billions in UK retail deposits, it may be a sobering thought for savers to consider where they are putting their cash. These banks are now seen as the most unsafe in the developed world.Of course, no one can be sure that disaster looms for anyone, but the figures on credit default swaps show clearly where investment professionals think the big risks...
If you think it is bad now, imagine what it will be like if the reckoning for Lehman's Credit Default Swaps goes bad today. Many market players think this is the reason banks are hoarding cash, because no one really knows if these derivatives will settle without serious mishap.Lehman's bonds are trading at 13c on the dollar- and there is $128 billion in bonds outstanding. The banking system is looking at booking a $100 billion hit today. There are an estimated 350 counterparties and nearly 2000 related securities.Guido thinks that Greenspan could have been right on this, the risk has been distributed, it will hurt. If it goes smoothly we could be looking at a monster relief rally... but it is still a bear market......
