Oh how the mighty fall.

So now Citigroup moves into the spotlight. We have seen it all before over the last few months. First the bluster, bravado and braggadocio from the incumbent CEO followed by a sharp jolt. This time our Vikram was the culprit, yes he who harangued his poor staff over the Wachovia jilting. He stood outside his headquarters not 2 weeks ago telling anyone who would listen how strong his operation was. I don’t know about you, but as soon as I saw this I wondered whether I shouldn’t go and get a loan from them in the hope they would collapse and some idiot middle manager would offer me some crazy settlement figure, that’s if they were actually still giving loans by then of course. Then we watched the freefall and collapse of the Citigroup’s share price as if we were seeing a massive road traffic accident in slow motion. Speculation mounts about the future of Citigroup and, despite the determination of Vikram to go it alone, some say that he is no longer the master of his own destiny, as the likes of Morgan Stanley and Goldman Sachs have been said to be circling overhead. Well why am I not surprised. Morgan Stanley, however, is thought to have cooled on the idea of a deal since CEO John Mack's 'help' call was rebuffed by Pandit last September, a few days after the collapse of Lehman Brothers. Our Vik, a former head of Morgan Stanley's institutional securities division, was not interested in a deal at that time. Well like all Emperors who have lost touch with reality Vik had committed that cardinal error by then, he started to actually believe his own press.

Now it seems Goldman is also said to be crying off, despite its CEO Lloyd Blankfein calling up Citi in September to discuss a possible merger. The boot is on the other foot now though, as it is now Citi which is in trouble. Goldman is said, however, to be concerned about the cultural fit in a Citi deal and also the extent of the firm's future write downs and losses. The New York Times quotes Oppenheimer analyst Meredith Whitney, who has suggested that a break-up of the Citi Empire is almost inevitable. 'Pandit is wrong', she said, 'Citi will not be able to stay in its current form. Citigroup is in such a mess Stephen Hawking couldn't turn this company around. It has lost the most money of all the banks, and has the greatest leverage'. I say why not let Stephen Hawking have a go, would be interesting instead of just depressing wouldn’t it? (Insert here a slightly robotic voice telling the Board they are all fired).

Moving across to Europe, I hear that Deutsche Bank CEO Josef Ackermann has written to senior staff advising them that he is conducting a strategic review of the bank's operations in a bid to boost profits and Deutsche's falling stock price. ‘Ackers’, as I like to call him when we are sharing the odd glass of beer…not…is said to be alarmed at the bank's depressed stock price, which has fallen around 80% over the last year. He wrote in his recent letter that 'nothing, either in respect of future losses or capital requirements, justifies the currently heavily discounted price level of our stock'. You really do have to stand in awed and stunned silence at these guys don’t you, I mean come on guys, when did you stop seeing things as they really are? Oh sorry silly me that would be when you decided to start a systematic shredding of any principles Banks of yesteryear adhered to wouldn’t it.

Meanwhile the Governments in the developed world commit themselves to ever decreasing circles. The latest wheeze by the UK Government is to go and borrow massively and spend spend spend. So where are they going to get that moolah from I wonder. I don’t suppose for one moment it will be underwritten and thus, in the main, borrowed from, those very same institutions they are presently bailing out would it? Perish the thought we are on another crazy merry go round.

‘How to break the news’

So now it is a recession. Furthermore, this recession will be longer and deeper than at first thought. I don’t know about you dear reader, but I am heartily sick and tired of being treated like the same kind of idiot by the ruling Politicians who are running about like headless chickens, and being spoken to by those same ruling Politicians as if I was as inanely stupid as they are.

First we had ‘there will be a slight dip’, meanwhile we all drummed our fingers on the table wondering when they would get to the point, this was while repossessions were soaring, companies and individuals were going into bankruptcy at an ever accelerating rate. Then we had ‘there will be a bit of a depression, but not a recession’, we carried on drumming our fingers and shaking our heads, these guys were running out of road fast, but could not see it, or chose not to in their looking glass world of Politics. Then came the shock horror news that ‘this may be a recession’. We all yawned and wondered why it took them so long. Meanwhile they, that is the Politicians who had done nothing whilst this situation was bearing down on us like an out of control bus, started to act all tough, and pretend they really had got a grip on things, we weren’t fooled, and we won’t be at the elections across the world next time round. Following this, by a couple of weeks, so we, the stupid public could get a grip on their previous statement you understand, they delivered the news that actually ‘there was a recession’. Hurrah we all shouted, at last they seemed to be taking those first steps away from the self delusional world they all inhabit, until the voter gets rid of them that is.

However, worse was now to come. They all truly thought they could do something about it. Having let the Genie of a deregulated market out of the bottle, they fully expected to put that Genie back. They hummed and they pondered, they looked concerned and semi intellectual (yes I know, a difficult thing for them to manage, but they tried, so give them credit), they held meetings (always a good thing to do if you are bored and lonely I suppose), they discussed, they cogitated, they ruminated. Meanwhile we sat there wondering what had possessed us to let such a bunch of nitwits and incompetent nincompoops take control, and not on a local scale but on a global scale. I put it down to mass hysteria myself. Anyway, I digress. Next up, we had news that ‘the recession would be short and sharp’. This would be like a short sharp shock would it? Something like an electric shock perhaps? By this time, we could see their lips were moving, but we had now switched off to their ramblings. It was all getting old news, the day to day toil of putting one foot in front of the other was now more important. It would be wise on that last point, not to let your incumbent ruling Party Politician know, he or she may well suffer a complete breakdown if they really knew how insignificant we really thought them.

And so we come to this latest statement. We are now told, with a complete lack of any kind of humility, ‘the recession will be longer and deeper than at first thought’. This ‘first thought’ would be when? Would it be earlier this year as all the cracks in the dam started to appear but still they partied at the base? Or would it be at any of the 5 steps of complete self delusional ineptitude we have seen above.

I leave that decision to you.

dateline 10th November 2008

So the news is that Peter Burt and George Mathewson wanted to prevent the government-brokered takeover of HBOS by Lloyds TSB. Burt was chief executive of Bank of Scotland when it merged with Halifax to form HBOS in 2001 and Mathewson was previously head of RBS. These would be two guys who were part of the problem then wouldn’t it? After all, they were instrumental in setting up HBOS and RBS in their current forms, models that have faced difficulties since the credit crunch given their use of wholesale funding.

Shane O'Riordain, HBOS spokesman, gave the usual, ‘we are studying’ stuff then followed by saying the letter did not address the funding issues that all major banks are currently seeking to manage. Meanwhile the prospect of the UK government becoming a major shareholder in Scotland's other big bank, Royal Bank of Scotland, through a recapitalisation programme -- have become a major issue there. Last week, the bank accused a Scottish lawmaker of treating the bank as a "political plaything" after he said a rival bid to its planned takeover by Lloyds could emerge within a week.

Alex Neil, a member of the Scottish parliament who has campaigned for an alternative to the Lloyds offer, said he was "very, very confident" a second bid will be unveiled soon. Neil then declined to name the possible bidder or give details about their potential offer. He described the suitor only as a "financial institution with a global reach.”

Well that’s ok then, thanks for ensuring we all enjoy this new period of openness Neil. Now is it me, or are these guys starting to play a bit fast and loose? Oh wait, they’ve done that, so no change there then.

I bet myself it would only take 1 or 2 months before the infighting started, so it looks like I owe myself a nice jam sandwich. With a cup of tea, natch.

News reaches me of that juggernaut of the Motor Industry, General Motors. Now this is the company that recently went cap in hand for a hand out from the US Government bail out fund without success. It transpires that GM is turning to debt exchanges to deal with capital-raising needs. The financing arm of General Motors says it wants to exchange a “significant amount” of its outstanding debt for a reduced principal as part of a plan to become a bank holding company and to participate in the US government’s bank rescue package. Crafty old foxes they have at GM it seems.

I felt my blood run cold when the UK banking rate cuts were issued recently. Not the cut you understand, that was great news for all us borrowers. What made my blood run cold was when various members of the incumbent UK Government smarmed their way onto the TV channels telling us they had brought huge pressure onto the various retail banks they now have influence over. Alistair Darling, that Finance Supremo, put the banks in a half nelson by telling them he would consider ‘prescriptive’ measures to force them to tow the line. Now good as this may seem on the surface, I am not so sure I want a Political Party using the UK banking system as a vote winning tool. However, I did have a good chortle when I read that HSBC and Barclays had effectively stuck two fingers up at him. Darling and his acolytes were also told that this was it. I loved the quote by one bank executive who said “Base rates are now so low that our margins are desperately small, this point was made quite clear to the chancellor by several of the executives — we are not charities.” Ah, that’s where I’ll be going wrong then.

The next few months should prove fascinating.

dateline 03 November 2008

Earlier this month I read the forecasted third-quarter profit forecast for Deutsche Bank with great interest. I was surprised when the headline on their website read “Deutsche Bank expects third-quarter 2007 net profit to exceed EUR 1.4 billion” I was less surprised to read that the posted profit in the third-quarter was €435 million, and this after certain ‘adjustments’ now allowable, but hey, what’s a billion between pals. Amused, I had a good chortle reading Josef Ackermann’s comments in the lead up to the posting. He said, “the outlook for the banking sector remains challenging". I do enjoy rhetorical understatement don’t you?

Keeping with the European theme, the derivatives losses still keep coming. Caisse d’Epargne the French savings Bank must be going through the meat grinder at the moment. I couldn’t decide which comment had me laughing more. Their own, with yet more masterly understatement, said “Due to the extreme volatility of the markets and stock market crash in the week of October 6, Caisse d'Epargne experienced an important market incident in its equities derivatives activities”. This was an ‘incident’ of around €600 million you understand, or the comment in a note coming out of Citigroup recently which said, “Caisse d’Epargne's business model looks increasingly challenged". Well challenged would be one way of putting it I suppose. Unmitigated disaster may be another. Added to this Natixis must be feeling the pressure. Not that you would know it by the Ostrich impression Caisse d’Epargne is managing right now. This recent piece of information dropped into my inbox and I was amazed. It transpires Caisse d’Epargne and its merger partner, Groupe Banque Populaire together own 70 per cent in Natixis, France's fourth largest bank. A sharp fall in the Natixis' share price is currently being investigated by French authorities to see if investors had contributed to the decline (surely not). Natixis' shares were recently trading at €2.03 but Caisse d’Epargne holds the bank's stock on its books at €19.55 - the price at which its shares listed when it floated in 2006. I shake my head in bewilderment dear reader, as I’m sure you do to.

Moving swiftly on, we even had Christine Lagarde, France's Finance Minister, denying funding difficulties after the French satirical magazine Le Canard Enchaine, a great name don’t you think, said Societe Generale was facing a €6.5 billion gap in its capital base. You must all recall the name of Jérôme Kerviel, yes, that trader who managed to pop around 4.9 billion Euros in a series of trades. What I want to know is where did that 4.9 billion go, and is there any chance poor old me can get a cut? One lives in hope.

In the UK there was outcry amongst the political chattering classes when Barclays went solo on raising finance. Many august institutions were full of envious shame at their own positions. You know the feeling, you see the expensive opulent car go by, you lust after it, and yet you almost hate the person inside. Well all I can say to Barclays, on behalf of all these people you understand, is ‘How very dare you.’ However, Gordon Brown still does his globetrotting bit, telling anyone who will listen that they should join him in his financial idea of a ‘New World Order’. God help us all.

Hang on tight if you are involved in Hedge Funds. Investors heading for the exit has turned into such a rush some are getting trampled underfoot. Managers are trying to herd them safely back into the pens with increasing desperation. I only mention keeping the investors penned up because the industry itself talks about gate provisions. Only a few months ago, joining a hedge fund was akin to getting a Coutts & Co bank account, not for mere mortals. Now managers are making it hard for investors to get out.

Timothy Mungovan, a partner who advises hedge funds at the monolithic US law firm Nixon Peabody LLP is quoted as saying, "Everyone is looking at their gate provisions and what rights they have to close their gates, it is a phenomenon that has been occurring for some time and is picking up pace now."

So there, I wasn’t the one who started talking about those investors like they are cattle, they were.