All Black and White at Citi
In an apparent response to its previously inked bad deals of exotic mortgage-backed paper,
management is finally initiating a plan to save some bucks to counteract the disaster.
Take a deep breath for this bit of genius:
reported Tuesday that, as
copes with more than $58 billion in credit losses and writedowns, the bank that never sleeps is taking drastic cost-cutting measures: It will cease routine color printing and begin printing on both sides of the page, presumably to save ink.
An ominous-sounding Aug. 15 memo from John Havens, Citi's head of institutional clients, details this and other measures, which also include a crackdown on reimbursements for non-business-related Blackberry use and reductions of unnecessary market-data subscriptions:
"As you know, we have spent considerable time looking at our headcount and related expense, and while we have made progress in that area, we still have more work to do. I recognize that the work around headcount has been challenging, and I appreciate all of your efforts."
As it reins in the most profligate of its employees, Citi's taking no chances, actually removing color copiers and printers "from the locations where they are not essential for purposes of preparing client presentations." Just in case some rogues want to get wacky with the pastels, Citi's removing all temptation.
If only Citi had implemented these measures -- which are certain to save tens, if not hundreds, of dollars -- without amassing billions in crippling investments in the quaking housing market -- it could have achieved profits more in line with its Technicolor dreams.
As it stands now, though, Citi's future remains as drab as the grayscale pie charts that will soon adorn virtually all of its internal presentations. Let's just hope those double-sided documents are no longer written on the back of recycled mortgage securities.
-- Mike Taylor
Dumb-o-meter score: 100. If some of its assets were of a more movable type, Citi might not be quite so pressed for ways to save money, no matter how small and ridiculous.
Hey China, Spare a Few Bucks?
customers waiting to to get money from the federal government may soon have company in line. If only it weren't the Federal Deposit Insurance Corp.
The FDIC -- the government agency that safeguards your deposits if your bank runs out of money -- seems to be running short of funds itself.
"I would not rule out the possibility that at some point we may need to tap into lines of credit with the Treasury for working capital, not to cover our losses," Chairman Sheila Bair told
The Wall Street Journal
Sorry, Sheila, but that's not the strongest pitch when you go hat in hand to Treasury Secretary Henry Paulson.
We can hear it now, "Come on Hank. You know I'm good for it. It's me, Sheila!"
Suffice to say, if Paulson were back on Broad Street running
instead of in Washington, he would probably balk at a bailout due to the credit risk.
The number of troubled banks and thrifts jumped to 117 -- the highest level since mid-2003, according to FDIC data released this week. The FDIC also said profits earned by banks and savings and loans plunged by 86% in the second quarter, to $5 billion.
Before groveling at Paulson's feet, Bair may try another desperate ploy to replenish the $45.2 billion fund. In October, the FDIC will consider a plan to raise the rates banks pay into the fund and charge higher premiums from banks that engage in risky lending practices.
Good thinking -- squeeze the already beleaguered banks until they are sure to fail and
beg Treasury for money. One question: Who's going to bail out the Treasury?
Here's how that one will sound: "Come on China. You know I'm good for it. It's me, Hank!"
-- Gregg Greenberg
Dumb-o-meter score: 90. We've got a Bair market at the FDIC, too? Oy!
We here at The Five Dumbest Research Lab have rarely stumbled upon a specimen like
when it comes to stupidity. The dumbness appears to be never ending.
Hence, this week's installment: On Wednesday,
announced that it had canned several top executives who oversaw its massive hemorrhaging of capital and replaced them with several other Fannie execs -- who also oversaw its massive hemorrhaging of capital.
Talk about rearranging deck chairs on the Titanic.
In case you have missed the continuous litany of Fannie's sins, here's a brief recap. While Fannie's stock has rallied a bit this week, its shares are down about 90% from its 52-week high.
The bloodletting of capital is so severe -- and its potential consequences for Wall Street and the broader economy so dire -- that the federal government in July pledged that it would step in and bail the government-sponsored mortgage giant out if necessary, at the risk of wiping out equity investors.
Fannie investors are tired of taking on water and want the uncertainty surrounding the company and a possible bailout to go away. What the company needs is new capital! Changing the titles on a few senior executives' business cards doesn't change that.
Moreover, even if a shake-up in the executive suite were the answer, wouldn't you think the company could have looked outside its walls for replacements who are not tainted by its steep decent?
But at least this sinking ship will go down with its captain. CEO Daniel Mudd was not among the departed.
Wall Street appears to be so fatigued by Fannie's woes, that even analysts have trouble summing up enough energy to once again poke this dying horse.
In a one-page note, FBR Capital Markets offered a recommendation to investors that amounted to a yawn and shrug of the shoulders.
"We continue to be cautious on the name as elevated credit losses on the existing credit book will continue to pressure capital levels," it read.
In other words, go raise more money, dummies.
-- Michael Gannon
Dumb-o-meter score: 85. If only Fannie could have canned whoever invented the mortgage-backed collateralized debt obligations way back when.
Not Dead Yet
Reports of Steve Jobs' death have been greatly exaggerated, this time courtesy of
The financial news giant accidentally published an unfinished 17-page obituary for the
CEO late Wednesday before quickly pulling the story.
In a retraction notice
called the errant posting an "incomplete story" -- presumably because Jobs is still, you know,
-- and Apple shareholders especially -- the premature obituary didn't cross the financial newswires until after the stock market had closed for the day. Still, the report was unsettling for investors who care greatly about Apple's CEO and plans for his succession.
Jobs' health is a particularly delicate subject lately. Jobs has previously battled pancreatic cancer, but his frail appearance during the launch of the iPhone 3G earlier this year ignited speculation that he is continuing to battle the disease.
Of course, it's natural for news organizations to prepare obituaries for such high-profile names well in advance. But for a company as infamous for micromanagement as Bloomberg, a gaffe like this is especially shocking.
For Jobs, though, there is one small consolation in combing through those 17 pages. You've got a once-in-a-lifetime opportunity to edit your own obituary.
-- Robert Holmes
Dumb-o-meter score: 82. Our guess is that someone at Bloomberg may be writing their career obituary next.
The sky is falling on Joe Sanderson. And that calamity will make more than a few folks happy.
Sanderson has it coming. The CEO of poultry producer
told analysts this week that it would take "a miracle and an angel" to return a profit in the coming quarter. Then, after realizing his plea for divine intervention wouldn't fly, he backtracked and refused to make a prediction.
Sanderson's inability to talk turkey "scared the living daylights out of the market," wrote BMO Capital Markets analyst Kenneth Zaslow in a note to clients. Sanderson Farms stock tumbled 8% on the gaffe and shares of competitor
shed 11.2%, not far from a 52-week low.
Furthermore, Joe Sanderson's "fowl" up could not come at a worse time, as a real game of chicken is heating up between Russia and America over meat. Russia's agriculture minister told reporters this week that, "It is time to change the quota regime and reduce imports, which have unfortunately built up in recent years."
The result could be a dramatic reduction in Russian poultry and pork import quotas by hundreds of thousands of tons.
Meanwhile, back on Sanderson Farms, the company's margins have been whacked by weaker demand from casual dining and food service customers and higher prices for chicken feed, specifically corn and soybeans.
Sanderson Farms, which doesn't hedge its grain costs in the futures markets, said corn costs rose nearly 31% and soybean meal was up 52% from last year's levels. At the same time, boneless breast-meat prices dropped almost 11% a pound and jumbo-wing prices fell 30%.
To combat the industry foxes, Sanderson says its closing its henhouses. Earlier this summer, the company stopped construction of a new North Carolina chicken facility and it plans to cut production at its new Waco, Texas, plant.
A better strategy may be telling Joe Sanderson just to shut the cluck-up.
-- Gregg Greenberg
Dumb-o-meter: 70: Talk about laying an egg!