The Wall Street Journal is out with an opinion piece that, for the most part, I support. I don't agree with everything in the piece, but I agree with a lot of it. The piece delves into Citigroup's recent support of cramdown legislation. If someone sees a story out there, that takes the opposite view of the Journal piece, please send it my way. I'd like to present both sides of the story.
From the Journal:Mr. Durbin and his allies have tried and failed several times to break the cramdown opposition, and they believe Citi finally gives them the club to prevail. As Mr. Schumer noted in a press release, "Citigroup's support means that the dam has broken across the banking industry. We now have a real chance to pass this legislation quickly." Talking point number one for Democrats is that if giant Citigroup is for this plan, why would anyone oppose it?
In fact, Citigroup may support this plan precisely because it isn't a big player in the mortgage market. Sure, it has some dodgy mortgage-backed securities on its books, but they've been written down and the feds cover 90% of losses beyond $29 billion in any case. When it comes to making loans, however, Citi originates less than 10% of American mortgages.
Citi is falling further behind J.P. Morgan Chase, which acquired Washington Mutual; Wells Fargo, which acquired Wachovia; and Bank of America, which bought Countrywide. J.P. Morgan's mortgage business is now twice the size of Citi's, while Wells and BofA each originate almost three times as much dollar volume as Citi. So in agreeing to Mr. Durbin's offer, Citi is also volunteering its competitors to write down more mortgages, giving Citi a comparative advantage.
You know, I don't trust anything Citigroup does. All of our BS meters should have been spinning when Citigroup did an about face -- and threw its support behind this legislation.
You can read the rest of the story here (link).
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Monday, January 12, 2009
Bank of the United States
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8 comments:
There's a reason why the "Citi never sleeps."
Because the second it does sleep, its past will catch up with them (along with the "competition")!
Indeed. I am not saying that this wasn't a shrewd move. Citi has been pretty smart -- historically.
Well there had to be a reason like this behind it. I think the strategy might backfire though. Keep killing the mortgage industry and all other loan divisions will suffer too.
Sam, I'm probably not as skeptical as the Wall Street Journal's editors, but I am skeptical.
Bloomberg out with a story:
Mortgage Bankruptcy Reform May Speed Card Losses
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apZ1F3q5wBpE
Well you did say you wanted to get an article that took the otherside. I've never spoken to a bankruptsy lawyer but I bet they tell you to wipe out all your unsecured debt and start over. Not take your new found extra monthly money from your lower mortgage to pay the debt off.
Look at it this way-
if someone's filing chapter 13 just for the mortgage cram down and has no other financial issues, they probably will find themselves in a 100% payback plan.
An increase in filings shouldn't hurt the CC lenders in this scenario- they get 100%.
For those filing 13 for other reasons- the 13 plan may be fractional payback since the plan is based on disposable income. All a modification will do is increase the % of their plan payback- CC lenders win here too- at the mortgage lender's expense.
A third group- those that were going to file a chapter 7, but switch to a 13 to get a modification- CC issuers win here as well. Even a fractional payback is better than 0%.
Citi has more CC debt on the books than they do Mortgage loans. Ask again why they are in favor of this? ;)
Rad, nice.
Now why would Citigroup be in favor of this? I think you spelled it out nicely.
Thanks.
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