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from Rolfe Winkler:

Lunchtime Links 1-19

MUST READ -- Souring mortgages, weak market put FHA on tightrope (Timiraos, WSJ) Good article, though Timiraos doesn't address the absurd circularity perpetuated by FHA Chief David Stevens when Stevens says, on the one hand, that more gov't lending protects the housing market from further declines, while simultaneously arguing that such lending isn't sustainable. That said, Timiraos has worked lots of interesting stuff into this piece, especially towards the end. For instance, in late '07 investors were refinancing at-risk borrowers into FHA loans in order to shift risk to taxpayers. Barney Frank defends permanently raising FHA maximum loans for certain geographies to $729k. Also lots of data about how badly FHA loans are performing.

Citi's Q4 earnings: Not terrible but not great (Wilchins, Reuters) Trading revenues in the investment bank were much weaker compared to last quarter. Citi also benefited from a tax break, without which they wouldn't have met consensus estimates for the quarter. Here's a helpful chart.

(Click here to enlarge in new window)

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How the French outplayed AIG and the Fed (Berman, WSJ...subscription req'd) Great column. Goldman gets all the bad press, but it was far from the only bank that got 100¢ on the dollar for derivative contracts with AIG...

Too big to fail is here to stay (Salmon, Reuters) Felix does a great takedown of Andrew Ross Sorkin's latest column.

from Rolfe Winkler:

Architect of Citi says bring back Glass-Steagall

Objective observers mostly agree that it doesn't make sense for banks to be in the securities business, not if they're explicitly insured by the government. Wall Streeters invent rationalizations to support the current structure because a large chunk of their profits come from trading.

It's very refreshing that John Reed, an architect of Citigroup -- the biggest, most disastrous financial supermarket of them all -- now says the merger was a mistake and banks should be broken up.

Calling Geithner

Good work by the AP in getting a copy of Treasury Secretary’s Tim Geithner’s phone log, which shows that he was quite busy during the first-half of the year speaking to Wall Street bankers. These stories are fun reads and I recently did one based on FDIC Chairwoman Sheila Bair’s datebook.

To me, the most interesting thing to come out of the Geithner call list is the revelation that he spoke several times with both Citigroup Chairman Dick Parsons and Citi CEO Vikram Pandit. Now, given the dicey situation Citi is in, that’s not surprising. But compare this to Bair’s dealings with Citi–in which she all but kept Pandit at arms length this summer.

Dow 10,000 is a gas

Jack Healy’s story in The New York Times about the Dow getting closer and closer to the magical 10,000 mark is OK, but it contains few surprises. But I really was blown away by the chart that shows the perfomance of Dow component stocks since March 29, 1999–when the index crossed 10,000 for the first time.

The chart, which includes a number of stocks that are no longer part of the Dow–such as AIG, Citigroup and Eastman Kodak–is interesting because more component stocks have lost ground over the past 10 years than posted gains.

Citi still loves Beantown

It appears Citi may not be pulling out of cities like Boston and Houston after all.

The Wall Street Journal is reporting that Citi is giving serious consideration to shrinking its retail banking presence in the US by retreating from cities where its laggard, such as Boston, Houston and Philadelphia. Instead, the bailed out banking giant would focus on six major US cities where its retail presence is strongest.

Giving props to Wall Street’s risks

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Wall Street would like you to believe that when investment banks take on risk they are largely doing it for the benefit of investors — maybe even you and me.

Bankers say much of the capital that their firms put at risk each day is to complete trades for big corporations, mutual funds, pension funds, hedge funds and university endowments. And contrary to the conventional wisdom, proprietary trading — bets made for a bank’s own behalf — is really just a small part of their business.

PE and the Citi

One would think that leaders of large financial insitutions whose very existence is dependent on the kindness of taxpayers would be more circumspect in their words and actions. It’s not a blunder on the same scale as the recent tough-guy talk from AIG’s new chief executive, Robert Benmosche, yet today’s news that Richard Parsons will join a private equity firm is a little worrisome.

The statement announcing that Parsons will become a senior adviser to Providence Equity Partners, a private equity firm known for its many media investments, stresses that Parson’s “primary business activity” will continue be as chairman of Citigroup. The new role, however, still suggests that Citi no longer requires Parsons’ full-time attention — a suggestion that Citi’s legions of skeptics will find astounding.

Kraft moving ahead with financing

Why let a little rejection stand in your way? Kraft is proceeding with the financing it would need to buy Cadbury, even though the U.K. confectioner spurned the initial offer. It looks like it’s financing plans are  above what had been initially expected, which could mean slightly more new cash could  be added to a revised bid.

Credit Suisse had put the new debt at $6.667 billion. Bloomberg reports it looks more like $8 billion.

Songbird deal backs Canary Wharf

Nomura’s decision to move its Lehman staff from Canary Wharf to the City earlier this summer seemed a victory for London’s historic financial centre over its upstart rival.

However, the astonishing terms Nomura secured, combined with a recent rescue fund-raising for Songbird Estates, owner of much of Canary Wharf, show that the Docklands estate retains its pulling power.
(more…)

Time to get tough with AIG

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It’s time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group’s new $7 million chief executive.

Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer’s corporate offices in New York.

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