In order to complete the wind-down of the Citi-advised Structured Investment Vehicles ("SIVs"), Citi announced today that, in a nearly cashless transaction, it has committed to acquire the remaining assets of the SIVs at their current fair value, estimated to be approximately $17.4 billion, net of cash.
Lessons learned? Stupidity trumped greed. It wasn't the SIV, it was everything else. And finally, they really made virtually nothing on this, prior to the blowup. Maybe that's the definition of greed -- risking everything for nothing. From Barrons:
SIVS earn narrow spreads estimated at 0.30 to 0.40 percentage point. This means that Citigroup, which had $100 billion of SIV assets this summer, might have netted $300 million annually, perhaps split 50/50 between Citigroup and the outside equity holders. The equity investors were getting a relatively modest 8% annual return.
Citi's factsheet on the SIV's was relatively upbeat. As December, the SIVs had $62 billion in liabilities, less $13 billion in cash and $2.5 billion in junior notes (which take the first hit) for a net exposure of $57 billion. I looked through the earnings announcements, and didn't notice that there were significant losses related to these assets. Very difficult to tell without heavy digging. I'm sure the $2.5 billion was wiped out (SIV junior notes) and they did mention a few hundred million. Under a billion unless it was hidden somewhere else.
The assets had a maturity of 3.5 years, so I would think the remaining ones would have a lower duration. And there may be another haircut or two on the $17 billion. They obviously can't sell them easily, so they may have to just hold them and see what happens.
In conclusion, they didn't make much on these things. They may not have lost more then a billion or so on them. They might get most of the remaining $17 billion back. In the meanwhile, they managed to lose money on virtually every other part of their balance sheet. The remaining assets are all in areas that look sensitive to the economy.
If we assume that the SIV WASN'T THAT BAD, (note that I could easily have missed billions in writedowns - but lets just say it's true), then it is possible for the company to be correct -- it isn't that bad, and the critics wrong about the SIV. But being right about the SIV (assuming it is true) doesn't mean that they (and you if you believed them) were right about the company. It was other stuff. Huge numbers of things. Other structured finance securities, marks for the failed monolines, general loan losses, etc. etc.
Here is where we are now: City tries to put itself up for sale.
The had a market cap of $200 billion. The raised $50 billion in private capital. They got $25 billion from TARP.
Result, market cap, $25 billion.
And it still isn't clear how much (if anything) they lost on the stupid SIV. I remember that every time Citi said ANYTHING about the SIV, their stock dropped by 10%. I have a possibly demented idea that if they had just moved it to their Balance Sheet in August, 2007, they might have kept under the radar screen, become the 3rd or 4th worst money center bank, and maybe even thrived. Probably not, but the SIV -- the way they handled it -- killed them as a serious business. Please let me know if I am missing something regarding SIV specific losses.