When it seemed clear that big banks like Citigroup were only corpses awaiting stock to be nationalized, it appears a communication Pandit (CEO of Citigroup) to their employees, ensuring that your bank is currently making profits. Not only that, but they are having the best quarter since the summer of 2007. The first-quarter earnings would be U.S. $ 8,300 million, before taxes and provisions. Is supposed to be an internal memo. Only assumed, since the intent is clear to the markets, they would drop the action of Citi under a dollar. "An attack on the shorts?
Ken Lewis, CEO of Bank of America, one would expect, and the next day to appear on CNBC the same story: they are making profits. JP Morgan also joined the party of the surprising benefits.
Just four days since the last public aid to these giants, crying and asking, and now, as if by magic, are reaping benefits.
As a curiosity let me say that on March 2, Roberto Hernandez, Citi director, bought 6 million shares at $ 1.25. On March 3, Manuel Medina-Mora, CEO of Citi Latin America and Mexico, purchased 1.5 million shares at $ 1.24. What a coincidence that so few days later the CEO as positive communication with their employees.
Do We Believe?
is clear that they are operating profitably, yes we think so. It is hard to believe considering that the U.S. money is now free, and since the loans are largely fixed rate, interest rates are conducive to their advantage everyday.
But what that about the mark to market?
The mark to market is the obligation of banks each quarter to reflect in their accounts the depreciation of assets based on market price. Cause the dreaded write downs, the real problem of the banks.
Citi has $ 88,900 billion in write downs since the beginning of the crisis. The future benefits depend entirely on the importance of write downs in its results, and these depend on the deterioration of the economy and the market, but also the implementation or otherwise of the mark to market, which is currently fashionable debate.
people are talking these days the U.S. Financial Accounting Standards Board meets on Monday to discuss the application of mark to market for illiquid assets. It seems unlikely the disappearance of the mark to market, but it is starting to consider the possibility of changing in exceptional periods in which there is no market for these assets. Something that would be very favorable results for U.S. banks, and consequently, for their contributions.
packets are assumed mortgage debt is valued today at below market value "real." But what is its real value? . In bundles of mortgage debt could be happening as in the stock market and the market is not to overreact and do not set fair prices, but simply the market expects a high probability a future situation worse, with more defaults and lower asset prices. It makes little sense for the market to pay for something so far below their real value of course. We assume that markets tend to be efficient (although they are not at all), and certain prices are always displayed buyers. If they are not, there must be something the market discounts.
If a mortgage debt package is valued by the market to zero it is clear that just as a market inefficiency. It is virtually impossible to be worth zero, since even having to liquidate the entire package and with the support of depreciated assets, provided that such assets will be worth something behind. But again same thing, who in these conditions is able to fix your "real" value?, do we have another disaster on the threshold higher than that generated by the rating agencies?
is clear that no set prices in a year whereas its debt arrears double current levels, but it shall strictly according to the current situation. And not considered predictable asset price declines, so that although its current pricing work may be correct, as the economic decline was greater arrive at current market prices or at least close to them, and impaired balance banks would be more gradual. Do not bankrupt today, but every day would be worse. Unless the meantime came the long awaited economic recovery.
What if the bank needs to liquidate these securitization?
Obviously nobody would pay what it says, which could reach insolvency.
Is it intended that the banks can be set by Article 33 of asset prices to keep prices down further and thus further inflating the credit bubble a few years? What foundation would be based banks when this new bubble exploded even more inflated than the present?
If the market goes up and helps me, the market rules. If that says the market does not like us, we break the deck.
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