I can hear shareholders screaming but I still think Citigroup got off easy

I think Citigroup (C) just got off easy. If it were up to me, I wouldn’t have let the company repay its government loans so it can pretend to be just a regular bank again. Not yet. Not by a long shot.

You see there’s still the little problem of the $617 billion in troubled assets that Citigroup (C) stuffed into Citi Holdings. Yes, it would be nice to pretend that these aren’t Citigroup’s problem anymore but it simply isn’t true. And pretending that troubled assets disappear just because a bank says they’re off the balance sheet was critical to turning the bursting of a bubble into a global financial crisis in the first place.

On the surface, it looks like the Obama administration got real tough with Citigroup. But that’s only on the surface. Read more

Poor things: It looks like the banks are going to be forced to eat a truck load of government debt.

It’s a neat (partial) solution.

Governments around the developed world have been issuing billions–make that trillions–in new debt in order to pay for the bail out of the global financial system.

The worry, of course, is that at some point the world would see a buyers’ strike and the United States and the United Kingdom, two of the biggest issuers of new debt and two of the most fiscally challenged of developed economies, would be stuck with the need to raise money in a market that didn’t want any more of their paper.

Well, you can worry a little bit less. It’s the world’s banks to the rescue. So what if they’re riding to the rescue only because financial regulators are holding a gun to their heads? Read more

Are we fixing the banking system or just moving the risk around?

Bad news out of the Federal Housing Administration yesterday.

The agency, which guaranted about a quarter of all U.S. mortgages made last year, told The Washington, that it has guaranteed so many mortgages for FHA-approved lenders that’s its cash reserves will dop below the minimum set by Congress. For the first time ever.

The reserves are suposed to make sure that the agency can cover losses when a mortgage that it guarantees goes bad.

If this happend in the private sector, we’d say that the bank in question had made too many loans for its capital and that it needed to either raise capital to increase its reserves or sell loans to reduce its asset base.

But, of course, this isn’t the private sector. Read more

Bad mortgages get worse at Wells Fargo stretching out schedule for paying back $25 billion bailout

Fear of the future trumps current earnings, as far as investors are concerned, when it comes to Wells Fargo (WFC).

On July 22, before the opening bell, the company reported second quarter earnings of 57 cents a share–far above the 34 cents a share Wall Street had projected, and revenue of $22.5 billion, again above Wall Street expections of $20.5 billion. As the company said in its conference call, “Wells Fargo earned another record profit this quarter: $3.17 bln. While many banks are struggling to earn consistent operating profits, we’ve had back-to-back quarterly record profits”

And once the stock market opened for trading, the stock sunk like a stone. By 11 a.m. ET shares had dropped by 6%.

Why? Because investors looked past current earnings and revenue to the bank’s huge portfolio of some of the riskiest types of mortgage loans in some of the nation’s worst real estate markets, and didn’t see much that they liked. Read more