Not so fast, Johnathan Weil: Citigroup & the fair value illusion

Johnathan Weil called on Citigroup today to “properly confess” the “rot on Citigroup’s $2.1 trillion balance sheet.”  Weil is sure the rot is there because if it weren’t Citigroup “wouldn’t have needed last week’s government rescue [including] a new $20 billion investment by the Treasury Department, plus a guarantee covering about $306 billion of the bank’s assets against most losses.” I beg to differ.

The “rot” may well be an illusion created by poorly-drafted accounting principles applied in draconian fashion by auditors spooked by the specter of ruinous lawsuits.  Citigroup’s request for government assistance may well be an appropriate strategic response to the illusion.  In the market place, a good illusion beats a bad reality most any day.

Weil assumes facts not in evidence and arguably misapplies SEC regulations in demanding the Citi book losses now.  Under SEC rules, Citigroup would be obligated to “confess” losses on Form 8-K only if Citi’s board concludes that a material charge for impairment is required under generally accepted accounting principles.  If the board either has concluded that such a charge is not required or has not yet concluded that one is, no Form 8-K confession is called for. Continue reading

Why is Judge Ramos pushing a Wachovia-Citigroup marriage?

Under ordinary circumstances, a fight between Citigroup and Wells Fargo over Wachovia would be a good thing, benefiting Wachovia’s shareholders by pitting two prospective buyers against each other in a bidding war. Hence this Sunday statement by Wachovia:

“Wachovia believes its agreement with Wells Fargo is proper, valid and is in the best interest of shareholders, employees and the American taxpayers [however]. . . Citigroup is always free to make a superior offer to Wachovia.” (Courtesy WSJ Law Blog)

But these are no ordinary circumstances. The nation’s banking system would benefit, it seems, from an early resolution of the battle. Against this backdrop . . . Continue reading

Wachovia responds: Citigroup violated confidentiality agreement

Citigroup appears to have even less of a claim on Wachovia than I previously thought, on the basis of transaction documents posted late Sunday night by the New York Times (copy below the jump). The documents include an affidavit of Wachovia CEO Robert Steele and the Wachovia-Wells Fargo merger agreement. It appears, from these documents and others filed earlier by Citigroup, that if there’s a bad corporate citizen in this game, it’s Citigroup. Continue reading

Wachovia-Citigroup letter: Non-binding agreement to agree

Citigroup’s “agreement” with Wachovia appears to be a bust. If the $2.1 billion deal is documented by nothing more than the letter posted at Clusterstock (key excerpt below), Citigroup shareholders should get set for disappointment: the “non-binding” term sheet apparently involved a $42 billion contribution by the federal government. Citi’s reported $60 billion lawsuit against Wells Fargo suggests Wachovia was worth far more than Citi was letting on.

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