Welcome to Call to Decision 

Subject:  STOCK MARKET: Important article
Date: Mon, 14 Jan 2008 09:41:11 -0500

Hopefully you are paying close attention to the financial crisis unfolding before our eyes. Citigroup is our largest bank. Merrill is our largest broker. Both are in serious trouble. Smaller banks and brokers are also in trouble.
 
It is important to understand that banks and brokers have massive assets but very small equity bases. Multi-billion dollar losses have devastating effects upon those equity bases. Many financial firms are probably insolvent but this fact is obscured by the unwillingness to properly value derivative assets. Some of those are only salable at considerably less than 50% of the value stated by the institutions. The writeoffs we are witnessing are beginning to correct this but we have a long way to go. The financial institutions are desperately trying to raise massive amounts of capital to replace that written off.
 
Over the next few months, it is probable that some will fail. Everyone must pay close attention to whatever banks and brokers that they are doing business with.
 
Don Stacey
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http://www.reportonbusiness.com/servlet/story/RTGAM.20080114.wcredit0114/BNStory/robNews/home
 

Bracing for a week of writedowns and layoffs

MIKE PEACOCK

Reuters

January 14, 2008 at 6:48 AM EST

LONDON — Major American banks are expected to unveil substantial losses and secure more cash from abroad in what is shaping up to be a pivotal week for the global credit crisis, with central banks also poised to weigh in again.

Citigroup Inc. could write off as much as $24-billion (U.S.) and lay off 20,000 workers in a drive to cut costs and boost capital, CNBC said on its Website in a report dated Sunday.

CNBC said the plans will be unveiled on Tuesday when Citi, the largest U.S. bank by assets, reports fourth quarter results.

Investment bank Merrill Lynch is just as troubled.

The Financial Times said on Monday that Merrill was seeking about $4-billion in a second capital raising, and the Kuwait Investment Authority was expected to be a significant investor.

A deal could be announced as soon as midweek, the paper said, citing people familiar with the matter.

The New York Times on Friday reported Merrill was expected to suffer $15-billion in losses stemming from bad mortgage investments, almost twice the company's original estimate, when it releases its results later this week.

The FT also reported on Saturday that Citigroup was putting the final touches to its second big fundraising, seeking up to $14-billion from Chinese, Kuwaiti and other investors.

The $200-billion Kuwait Investment Authority had no immediate comment on Monday on the reports it may buy into the two damaged American banks.

Banks, wrestling with huge losses stemming from mortgages lent to people ill-equipped to repay them, have been seeking cash from sovereign wealth funds.

In December, Merrill Lynch secured as much as $7.5-billion by selling a stake to Singapore's government and an asset manager. The month before, Citi agreed to sell up to a 4.9 per cent stake to Abu Dhabi for the same amount.

As well as Merrill and Citi, other big names such as State Street and JP Morgan report results this week.

The Federal Reserve will auction $30-billion later on Monday and the European Central Bank and Swiss National Bank will continue their unprecedented U.S. dollar lending to banks, as part of ongoing coordinated central bank efforts to help calm credit market tensions.

The Bank of England will also weigh in.

Results of the latest “term auctions,” a plan agreed in December and one which has helped money market rates ease, will come on Tuesday.

One- to three-month Euribor interbank interest rates fell on Monday amid central banks' continuing moves to inject extra liquidity into markets.

Most experts say the threat of further losses at major banks from investments tied to U.S. subprime mortgages means the crisis is far from over, as crucial lending between commercial banks remains patchy at best.

The Fed is forecast to use its other policy lever – interest rates – before the month is out.

It is seen slashing rates by a half-point at its two-day meeting ending on Jan. 30 after Fed Chairman Ben Bernanke gave a downbeat assessment of the economy last week and said the central bank was ready to take “substantive additional action.”

The ECB and Bank of England declined to take similar measures when they met on monetary policy last week although credit problems in Europe persist.

“It's not yet clear what impact the financial turmoil will have on the real economy. We are going through a delicate phase. This is not the time to lose control of salaries and costs: we would further lose control on inflation,” ECB Executive Board member Lorenzo Bini Smaghi told Italy's La Repubblica newspaper.

Swiss banking giant UBS AG appealed to its shareholders last week to back a capital injection by the Singapore government and a Middle East investor and warned it still could not predict how the subprime crisis will play out.

And shares in stricken British lender Northern Rock fell as much as 7 per cent early on Monday, on fresh concerns the bank is facing imminent nationalization.

Northern Rock is Britain's biggest casualty of the credit crunch and has borrowed around £26-billion from the Bank of England since it requested emergency funds in September.