Comments on: Bank capital and short-term greediness

By: Foppe

Foppe — Fri, 16 Mar 2012 12:48:57 +0000

Why larry summers shouldn’t become head of the WB: http://mathbabe.org/2012/03/11/why-larry -summers-lost-the-presidency-of-harvard/

By: Danny_Black

Danny_Black — Fri, 16 Mar 2012 10:08:55 +0000

Anyone who gets taught by Anat Admati should demand their money back. I have never read anything intelligent by her and she seems to have a complete lack of any insight in to her field. Sure there exist companies that don’t pay out dividends but they are “growth” companies. You gonna stick your cash in a company who isn’t growing and isn’t paying dividends? A company that is merely paying down debt?

FifthDecade, seriously? Investors in C are DEMANDING that it simply pay down debts to become “more stable”? What investors do you hang out with?

By: crocodilechuck

crocodilechuck — Thu, 15 Mar 2012 20:07:40 +0000

Felix,

“So let’s allow that capital to leave the banks, return to shareholders, and get invested in the economy some other way.”

This is what banks DO (intermediate between savers and borrowers). So, per your comment, why HAVE ‘C’?

Per TFF’s post above, break it up (the consumer finance business and the global cash mgmt. product from the derivatives casino)

By: Moopheus

Moopheus — Thu, 15 Mar 2012 18:24:16 +0000

“everybody from traders to shareholders is trying to get their money out as quickly as possible, and regulators are fighting a rear-guard action trying to prevent them from doing so”

Really? It seems like regulators, for the most part, are bending over backwards to avoid seeing the looting happening right in front of their faces. They’re like Mob lawyers who know what their clients are up to but have to pretend otherwise in public. I mean, srsly, where are these “actions” of which you speak?

By: TheDollarGame

TheDollarGame — Thu, 15 Mar 2012 15:39:10 +0000

“What regulators should be doing, I think, is encouraging the likes of Citi to give back capital to shareholders — just so long as the bank’s capital ratios go up at the same time. In a word, deleveraging.”

If banks give capital back to shareholders, won’t their capital ratios go down? Won’t banks only achieve deleveraging if they use that capital to pay off their debts? Am I missing something here?

By: FifthDecade

FifthDecade — Thu, 15 Mar 2012 15:30:01 +0000

This “give cash back to shareholders” meme is almost a Wall Street war cry, it never seems to come from actual shareholders, just “sources” in the financial community. You’re right though the adversarial nature of the financial system has some exposed weaknesses at the moment, but will they get fixed? Somehow I doubt it…

By: TFF

TFF — Thu, 15 Mar 2012 15:06:13 +0000

Is that “book value” truly representative of their assets? Or is it filled with hot air and bloated valuations?

Moreover, book value is meaningless if you get hit with a liquidity crunch. There are plenty of good reasons to prefer that a bank hold on to its cash.

If you look closely, I think you will find that investors don’t value all parts of Citi’s books equally. Dollars held in cash are (or should be) valued at a 1:1 ratio. Dollars held in questionable derivatives are valued much more cheaply. That 0.58 is the average, not a universal multiplier.

Most damaging to investors would be the scenario in which Citi distributes $10B of cash to investors, then is forced to raise another $10B of cash through a stock offering. You get massive dilution when a stock is trading at a fraction of book value.