Archive for February, 2009

Citgroup to deploy $36.5 billion to boost loans: report (Reuters)

Monday, February 2nd, 2009 | Finance News

NEW YORK (Reuters) –
Citigroup (C.N) plans to use some $36.5 billion of its U.S. government capital infusion for new mortgages, credit card loans and to buy mortgage-backed securities in the coming months, the Associated Press reported on Monday.

Citigroup will announce details on Tuesday of how it will increase lending by using funds provided under the Troubled Asset Relief Program (TARP), the AP said.

"Our responsibility is to put these funds to work quickly, prudently and transparently to increase available lending and liquidity," Citi Chief Executive Vikram Pandit said in a statement seen by the AP.

Citi officials could not be reached immediately for comment.

Citi and other U.S. banks rescued by taxpayer bailouts are under pressure to step up lending to help loosen up tight credit markets and fuel a recovery in the economy. The bank received $45 billion in capital from the U.S. Treasury in two installments late last year.

Citi's management will allot $25.7 billion for U.S. residential mortgages, $5.8 billion to credit card loans, $2.5 billion for personal and business loans, $1.5 billion for corporate loans and $1 billion for student loans, the AP report said.

Of the residential mortgage funds, $10 billion will go toward buying securities backed by mortgages that conform to Fannie Mae and Freddie Mac standards while $7.5 billion will be used to buy prime home mortgages in secondary markets.

The final $8.2 billion will be mortgages issued to homeowners.

Citigroup stressed it will not "take excessive risk with the capital."

The bank's announcement about TARP use comes as the new administration of President Barack Obama wrestles with how to help ailing U.S. banks make more loans. Treasury Secretary Timothy Geithner is expected to announce new plans for rescuing the financial sector in a speech next week.

Citi also took pains to detail the areas where it will not spend taxpayer funds, according to the AP.

"TARP capital will not be used for compensation and bonuses, dividend payments, lobbying or government relations activities, or any activities related to marketing, advertising and corporate sponsorship," Pandit said in his statement viewed by the AP.

(Reporting by Joseph A. Giannone; Editing by Kim Coghill)

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GM, Chrysler offer workers cash, cars to leave (Reuters)

Monday, February 2nd, 2009 | Finance News

DETROIT (Reuters) –
General Motors Corp (GM.N) and Chrysler LLC on Monday began offering a new round of retirement incentives including vouchers for cars as the automakers move to reduce workers and inventory.

GM will offer its U.S. hourly workers $20,000 in cash and a $25,000 voucher to buy a vehicle as an incentive to retire or leave the company, an official with the United Auto Workers union briefed on the plan said.

The No. 1 U.S. automaker declined to comment.

Chrysler's program offers retirement-eligible workers $50,000 in cash and a voucher of $25,000 for a new Chrysler vehicle if they leave, according to a person with direct knowledge of the offers.

Workers who opt to leave Chrysler with no retiree health care benefits would get $75,000 and a $25,000 car voucher, the person said.

Chrysler confirmed that it was offering a new round of buyouts to workers that would be available until February 25.

Both GM and Chrysler are under pressure to cut labor costs further under the terms of a $17.4-billion U.S. bailout extended to the two struggling automakers.

Under the terms of that emergency lending, Chrysler and GM face a February 17 deadline to show how they can cut debt, labor costs and other expenses in order to be viable in a deeply depressed market for new cars and trucks.

As Chrysler's sales have tumbled, the automaker has slashed production, cut models and eliminated jobs. The automaker, controlled by private equity firm Cerberus Capital Management (CBS.UL), has cut some 32,000 jobs, $3 billion in costs and about 30 percent of its production capacity.

But sales continue to retreat. Chrysler led a sinking market lower with a 53-percent drop in December sales, and analysts see a chance for a drop near 50 percent when it posts sales results for January this week.

Both GM and Chrysler have offered buyouts to trim factory payrolls in recent years.

But the terms of the current round of offers appeared to be less generous than prior buyout packages.

GM said last May that about 19,000 U.S. factory workers -- just over a quarter of its blue-collar work force at the time - -- had taken buyouts to leave the payroll.

In September, Chrysler had offered some 14,000 factory workers in Michigan lump-sum payments of up to $100,000 plus tuition assistance and some support for moving.

Many UAW workers have been reluctant to take the most recent buyout offers since the deep drop in the housing market has made it almost impossible to sell their homes.

GM and the UAW worked out details of the larger automaker's early retirement offers on Monday, one union official said.

Other UAW officials representing GM plants said they had been told that a package would be announced but had not yet been briefed on the details.

Earlier this month, the union agreed to surrender a controversial provision of its contract with the automakers known as the "jobs bank" that had guaranteed nearly full wages and benefits for workers even after their jobs were eliminated.

In addition to concessions from workers, GM and Chrysler are also both looking for creditors to swap much of their debt for equity in the restructured companies.

Chrysler said in a statement that the challenging U.S. auto market had prompted the automaker to offer a new round of buyouts for all its UAW-represented workers.

It said the decision to make the offer had been made last year, although the automaker made no specific announcement at the time.

"Given the difficult economic and market conditions in the U.S., Chrysler LLC determined in December 2008 that it would offer another phase of special programs," Chrysler spokeswoman Shawn Morgan said.

(Reporting by Poornima Gupta and Kevin Krolicki; Editing by Phil Berlowitz)

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Citigroup to deploy $36.5 billion to boost lending (AP)

Monday, February 2nd, 2009 | Finance News

NEW YORK – Citigroup, under pressure to increase its lending, says it will spend $36.5 billion to issue mortgages, make credit card loans and buy mortgage-backed securities in the tight credit markets in the coming months.

The decision arrives after the bank received $45 billion in capital from the federal government in two installments late last year, and taxpayers' questions mounted about the use of that money.

In a report reviewed by The Associated Press that Citigroup Inc. plans to release Tuesday morning, the bank detailed how it is boosting lending efforts by using funds from the Troubled Assets Relief Program, or TARP.

It's not that the $45 billion in TARP is being doled out by Citigroup directly to borrowers. Rather, having the extra capital allows the bank to borrow more money from various funding sources, and then lend that money out to others. A bank makes money by borrowing cheaply for the short-term and lending at higher rates for the long-term; if a bank has no capital, other institutions and investors won't lend to it.

So while Citigroup says it will deploy $36.5 billion in the coming months as a result of TARP, that figure could grow substantially should the funding markets improve.

"Our responsibility is to put these funds to work quickly, prudently and transparently to increase available lending and liquidity," said CEO Vikram Pandit in a statement included in the report.

"TARP capital will not be used for compensation and bonuses, dividend payments, lobbying or government relations activities, or any activities related to marketing, advertising and corporate sponsorship," Pandit said.

After considering $51.2 billion worth of proposals from its various arms, the bank said it approved $36.5 billion. That includes $25.7 billion in U.S. residential mortgage activities; $5.8 billion in credit card lending; $2.5 billion in personal and business loans; $1.5 billion in corporate loan activity; and $1 billion in student loans.

The $36.5 billion deployment is in addition to the $75 billion in new loans that Citigroup made in the fourth quarter. It also does not include the $10 billion Citigroup used in November to buy pools of mortgages secured by Fannie Mae.

Of the $25.7 billion Citigroup set aside for U.S. residential mortgage activities, $10 billion will go toward buying securities backed by mortgages that conform to Fannie Mae and Freddie Mac standards. Another $7.5 billion will be used to buy prime home mortgages in the secondary markets. The final $8.2 billion will be mortgages issued directly to aspiring homeowners — including mortgages with values that exceed the limits set for government-sponsored loans.

Citigroup will be making more loans than it would have without TARP, but said in the report it will not "take excessive risk with the capital the American public and other investors have entrusted to the company."

The bank will continue to read proposals for increased lending from its various divisions, and plans to issue quarterly reports on TARP use.

While TARP will be used to back lending efforts, Citigroup's expenses will come out of its cash flow, the bank said.

The government has used TARP money, in many cases, to buy preferred stock in banks.

Where TARP capital sits on banks' books, however, is just a technicality to many of Wall Street's critics, who have harshly excoriated banks for their spending decisions.

New York state Comptroller Thomas DiNapoli reported last week that Wall Street spent $18.4 billion on bonuses for 2008; President Barack Obama called the payouts "shameful."

Citigroup has been criticized for its corporate jets — most recently, the fact that Citigroup's former CEO Sanford "Sandy" Weill, as a consultant to the company, had a contract that allowed him to use the jet for personal trips. (Weill and Citigroup last year agreed to terminate his consulting contract in April, and Weill on Sunday night said in a statement he would immediately stop using the corporate jet.)

Citigroup's announcement about TARP use comes as the government tries to figure out how to help the nation's ailing banks so they can lend more. Treasury Secretary Timothy Geithner is expected to announce new plans for rescuing the financial sector in a speech next week.

Banks are not lending massively because of three factors: Demand for loans is down due to the weak economy; there are fewer creditworthy borrowers in the weak economy; and the loans the banks already hold are expected to bring big losses in the coming quarters.

This is why banks' cash balances have jumped by $800 billion to $1.1 trillion since August, pointed out Miller Tabak & Co. analyst Tony Crescenzi in a note last week. Crescenzi said the idea of a "bad bank," or "aggregator bank" — which would take the bad assets off banks' balance sheets — could encourage banks to boost lending.

Another option is having the Federal Deposit Insurance Corp. guarantee more securities issued by financial institutions.

The Federal Reserve in its quarterly survey of bank lending practices released Monday found that nearly 60 percent of banks said they tightened lending standards on credit card and other consumer loans, about the same portion as in the previous survey released in early November. About 80 percent of domestic banks said they tightened lending standards on commercial real-estate loans, slightly less than the roughly 85 percent that reported doing so in the previous survey.

In January, Citigroup reported a fourth-quarter loss of $8.29 billion — its fifth straight quarterly deficit — and announced that it would be splitting into two parts. One portion, Citicorp, will focus on traditional banking around the world, while the other, Citi Holdings, will manage the company's riskier assets and tougher-to-run ventures.

The company has also made some significant changes at the board level.

Robert Rubin, a former U.S. Treasury Secretary, in January said he would be retiring from Citigroup's board. Less than two weeks later, Win Bischoff, chairman since December 2007, announced his retirement, too. Longtime board member Richard Parsons, the former CEO of Time Warner Inc., became the new Citigroup chairman.

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